Daylight Resources Trust
TSX : DAY.UN
TSX : DAY.DB
TSX : DAY.DB.B
TSX : DAY.DB.C

Daylight Resources Trust

May 06, 2009 23:45 ET

Daylight Resources Trust Reports First Quarter 2009 Financial and Operating Results - RECORD PRODUCTION CONTINUES TREND AS DAYLIGHT BUILDS FOR THE FUTURE

CALGARY, ALBERTA--(Marketwire - May 6, 2009) - Daylight Resources Trust ("Daylight" or the "Trust") (TSX:DAY.UN) (TSX:DAY.DB) (TSX:DAY.DB.B) (TSX:DAY.DB.C) is pleased to report financial and operating results for the three months ended March 31, 2009 ("Q1 2009").

Daylight delivered record production of 22,810 barrels of oil equivalent ("boe") per day during Q1 2009, increasing production by 15% over our Q1 2008 production of 19,804 boe per day. This was accomplished as a result of the continued success of our capital program and Daylight's production being impacted for a full quarter by several key strategic transactions executed during the previous quarter. Daylight continues to provide solid execution of our business plan while maintaining a healthy balance sheet, delivering a conservative payout ratio of 48% on the strength of continued operational success and a very effective hedging program. A key component of our business plan is to continue to add to our portfolio of low geological risk, repeatable drilling locations while maintaining the financial flexibility to pursue additional strategic acquisition opportunities. Subsequent to Q1 2009, Daylight delivered on both of these goals by announcing an equity financing for $172 million and the proposed acquisition of Intrepid Energy Corporation ("Intrepid") with production of approximately 3,000 boe per day in Daylight's core West Central area. Intrepid's assets are direct "bolt-ons" to Daylight's core properties of Obed and Sylvan Lake and add a complementary West Central property at Whitecourt that includes multiple, low risk drilling opportunities. Included in the acquisition are over 75,000 net acres of undeveloped land. Daylight continues to actively review numerous additional opportunities in what we consider an attractive market for acquisitions of oil and gas assets.

Q1 2009 OPERATIONAL UPDATE

Daylight drilled 20 gross (6.1 net) wells during Q1 2009, focused primarily on our broad inventory of multi-zone Cretaceous opportunities across our Peace River Arch and West Central core areas in the Alberta Deep Basin. Drilling success was 100% for the quarter, reflecting the strong technical capabilities within Daylight and the low geological risk, repeatable nature of our drilling inventory. Wells drilled include both vertical and horizontal wells that continue to confirm the breadth of the geological play types we are pursuing in the Deep Basin including the Cadomin, Nikanassin, Montney and various Cretaceous horizons. Given the recovery of heavy oil prices late in Q1 2009, Daylight also drilled two wells in our Wildmere property in the Lloydminster zone. The Trust will now reduce the pace of our drilling program until Q3 2009 when we expect cost reductions will begin to take hold from service providers, allowing the Trust to focus on evaluating additional strategic acquisition opportunities in the interim. With the reduction in capital activity in the short term as Daylight focuses on transactions, and with spring breakup and a major plant turnaround in Kaybob occurring in Q2 2009, Daylight anticipates lower production in Q2 2009 near the lower end of our 2009 guidance range. However, Daylight maintains our full year guidance for 2009 of 22,500 - 23,500 boe per day prior to including the impact of the Intrepid acquisition. Daylight will update our guidance upon close of the Intrepid acquisition, currently anticipated to occur in mid June 2009.

In our Elmworth and Bilbo farmins, Daylight drilled 4 gross (1.4 net) wells during Q1 2009 and has now completed drilling on eight wells of our nine well earning program. The drilling of the final earning well was deferred to the third quarter of 2009 with the consent of the farmor and no change to the earning terms. The first of these wells came on stream in early March. Results of the wells drilled and completed to date have met our expectations both geologically and from preliminary production results. These strategic farmins have allowed Daylight to effectively utilize our capital to earn lands in our core areas and add to our future inventory of well locations.

On March 3, 2009 the Province of Alberta announced a three-point incentive program designed to stimulate the province's energy sector through a system of royalty credits and new well royalty reductions. Currently Crown royalties represent approximately 78% of Daylight's total royalties paid. As an operator with the majority of our drilling activity in the Province of Alberta and our focus on deep horizontal resource play wells, Daylight will be a major beneficiary of the three-point incentive program. Based on the above benefit, we announced during the quarter that the Trust had increased our 2009 capital budget to $125 - $140 million of expenditures.

DAYLIGHT RESOURCES TRUST - HIGHLIGHTS

- Q1 2009 production volumes were a record 22,810 boe per day, an increase of 15% from Q1 2008 volumes of 19,804 boe per day.

- Subsequent to the end of Q1 2009, Daylight announced an equity financing for gross proceeds of $172 million (including full exercise of the $22 million over-allotment option) and the proposed acquisition of Intrepid which produces approximately 3,000 boe per day within Daylight's core West Central area.

- The Trust continues to have an enviable hedging position in the current low commodity price environment with 42% of mid-range full year 2009 production guidance hedged at very favorable prices. During Q1 2009, Daylight recognized a realized gain of $25.3 million on derivative contracts and at March 31, 2009 had an unrealized mark to market gain on derivative contracts of $73.4 million.

- Reported payout ratio for Q1 2009 of 48% continues Daylight's strategy of conservative financial practices designed to position the Trust with a strong balance sheet.



FIRST QUARTER FINANCIAL RESULTS

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Financial Q1 Q4 Q1
(CDN$ thousands, except unit and per unit data) 2009 2008 2008
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Petroleum and natural gas revenues $ 71,893 $ 91,311 $113,986
Operating netback 56,316 58,266 68,763
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Funds from operations 44,895 50,075 58,667
Per unit - Basic 0.50 0.56 0.75
- Diluted 0.45 0.52 0.66
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Cash distributions declared 21,657 35,193 23,333
Per unit 0.24 0.39 0.30
Payout ratio 48% 70% 40%
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Capital expenditures 59,413 38,766 43,630
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Units outstanding (000s)
Basic 90,239 90,239 77,914
Diluted 106,517 106,050 94,096
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FIRST QUARTER OPERATIONAL RESULTS

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Operational
(Per boe amounts may not add exactly due to Q1 Q4 Q1
rounding) 2009 2008 2008
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Average daily production
Natural gas (mcf/d) 91,668 82,572 67,691
Light oil (bbls/d) 3,935 4,086 5,174
Heavy oil (bbls/d) 2,117 2,798 2,181
NGLs (bbls/d) 1,480 1,217 1,167
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Oil & NGLs (bbls/d) 7,532 8,101 8,522
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Combined (boe/d) 22,810 21,863 19,804
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Average prices received
Natural gas ($/mcf) $ 5.26 $ 7.06 $ 7.92
Light oil ($/bbl) 46.17 55.28 91.40
Heavy oil ($/bbl) 37.57 45.20 71.54
NGLs ($/bbl) 38.81 43.27 74.91
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Oil & NGLs ($/bbl) $ 42.31 $ 50.00 $ 84.06
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Combined ($/boe) $ 35.02 $ 45.40 $ 63.25
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$ per boe
Petroleum and natural gas revenues $ 35.02 $ 45.40 $ 63.25
Royalties (6.87) (9.35) (12.06)
Realized gain on derivative contracts 12.32 6.08 -
Operating expenses (11.91) (11.95) (12.08)
Transportation expenses (1.13) (1.20) (0.95)
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Operating netback $ 27.43 $ 28.98 $ 38.16
G&A - cash charge (3.35) (2.23) (2.04)
Cash financial charges (2.21) (1.84) (3.56)
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Funds from operations $ 21.87 $ 24.91 $ 32.56
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Q1 2009 FINANCIAL & OPERATING RESULTS

Production

- Q1 2009 production volumes were a record 22,810 boe per day, an increase of 4% from Q4 2008 volumes of 21,863 boe per day and 15% from Q1 2008 volumes of 19,804 boe per day.

- Given our Q1 2009 record production and the continued success of our capital program, the Trust is well on its way to meeting our 2009 production guidance of 22,500 to 23,500 boe per day.

- Heavy oil production volumes declined by approximately 650 bbls per day during Q1 2009 compared to Q4 2008. This was due to Daylight deferring the capital costs required to perform regular repairs to artificial lift equipment in our Wildmere and Chipman properties due to low prices during the quarter. The majority of these repairs were performed early in Q2 2009 as heavy oil prices recovered and the majority of this production is now back on stream.

- The Trust reached record production for the quarter through the continued operational success of our capital program and a series of highly strategic transactions executed during the second half of 2008.

Capital

- Daylight's Q1 2009 capital expenditures included the drilling of 20 gross (6.1 net) wells with a 100% success rate. This investment in Daylight's assets and the strategic acquisitions closed by the Trust during Q4 2008 resulted in Daylight's production increasing to a record level in Q1 2009.

- Capital expenditures for Q1 2009 increased to $59.4 million from $38.8 million in Q4 2008 and $43.6 million during Q1 2008. Capital expenditures for the full year 2009 are targeted to be between $125 and $140 million.

- Drilling activity in Q1 2009 focused on Daylight's key property of Elmworth developing both the Cadomin zone and multiple uphole Cretaceous sands. In addition, the Trust pursued opportunities in the Montney, the Bluesky and in multiple Cretaceous horizons within our large West Central land base and drilled for heavy oil in our East core property of Wildmere.

- Farmout drilling activity also continued at our Obed property, with 1 gross (0.7 net) well drilled during Q1 2009.

Hedges

- The Trust has financial hedges in place for 3,000 bbls of oil per day through zero premium collars with a floor price of Cdn$110.00 per bbl and an average ceiling price of Cdn$205.52 per bbl for the period August 1, 2008 to December 31, 2009. In addition, the Trust has natural gas hedges in place for the period January 1, 2009 to October 31, 2009, on a volume of 47,400 mcf per day (50,000 GJ per day) at an average price of $8.00 per mcf AECO ($7.59 per GJ). During Q1 2009, Daylight recognized a realized gain of $25.3 million on derivative contracts and at March 31, 2009 had an unrealized mark to market gain on derivative contracts of $73.4 million.

- These hedges represent 42% of Daylight's 2009 mid-range production volumes guidance, securing our cash flow in a low commodity price environment and providing the financial flexibility to pursue strategic opportunities that may arise.

Funds from Operations

- Funds from operations for Q1 2009 decreased to $44.9 million from $50.1 million for Q4 2008 and $58.7 for Q1 2008.

- This quarter over quarter and year over year decrease in funds from operations is a result of a significant decrease in commodity prices partially offset by increases in production, the Trust's high value hedging program and a decrease in royalties paid.

Operating Netback

- Daylight's Q1 2009 natural gas price was $5.26 per mcf, a 25% decrease below Q4 2008 natural gas price of $7.06 per mcf and a 34% decrease from the Q1 2008 natural gas price of $7.92 per mcf.

- Daylight's Q1 2009 light oil price was $46.17 per bbl while Q4 2008 light oil realized $55.28 per bbl, a decrease of 16%, and Q1 2008 light oil price of $91.40 per bbl, a decrease of 49%.

- Daylight's Q1 2009 heavy oil price of $37.57 per bbl, is 17% lower than the Q4 2008 heavy oil price of $45.20 per bbl and is 47% lower than the Q1 2008 heavy oil price of $71.54.

- Royalty rates decreased to 19.6% of revenue in Q1 2009 from 20.6% in Q4 2008, primarily due to lower commodity prices realized during Q1 2009, partially offset by the impact of the implementation of the Province of Alberta's New Royalty Framework ("NRF"). Royalty rates increased in Q1 2009 from 19.1% of revenue in Q1 2008 primarily due to implementation of the NRF.

- Operating expenses decreased slightly to $11.91/boe for Q1 2009 from $11.95/boe for Q4 2008 and decreased from Q1 2008 operating expenses of $12.08/boe. Daylight expects its operating costs to be approximately $11.50 per boe for the remainder of 2009.

- Operating netbacks decreased to $27.43/boe for Q1 2009 compared to $28.98/boe for Q4 2008 and $38.16/boe for Q1 2008.

Payout Ratio

- Q1 2009 payout ratio was 48%, down from 70% during Q4 2008 and up from 40% during Q1 2008.

- During Q1 2009, Daylight declared three monthly distributions of $0.08 per unit and declared that distributions would remain at this level through Q2 2009.

- Since inception of the Trust in November 2004 through Q1 2009, Daylight has provided a total of $494 million or $8.98 per unit of distributions to our Unitholders.

- Daylight targets a low distribution payout ratio balanced with an impactful investment of capital on our high quality assets with the goal of fully funding both with our funds from operations over the long term.

Balance Sheet and Financial Flexibility

- At the end of Q1 2009, Daylight's outstanding bank debt was $238.4 million up from $219.9 million at year end 2008 due to our active and successful Q1 2009 capital program.

- During Q1 2009, Daylight renewed our $350 million credit facility with an expanded syndicate of high quality lenders. Our expanded banking syndicate includes our seven previous banks plus two new banks that unanimously supported the renewal. Our credit facility has an annual renewal date of April 30, 2010.

- Subsequent to the end of Q1 2009, Daylight announced an equity financing for gross proceeds of $172 million (including full exercise of the $22 million over-allotment option), reducing our outstanding bank indebtedness and positioning the Trust to execute on strategic opportunities as they arise, including the acquisition of Intrepid.

Tax Pools and Safe Harbour

- Daylight has tax pools of approximately $949 million at March 31, 2009 which are available to shelter cash flow from income tax for many years beyond 2011.

- Current Safe Harbour capacity for the issuance of $0.8 billion (post $172 million equity financing) of new equity provides flexibility to execute on larger scale strategic opportunities as they arise.

The recent global economic downturn has affected all businesses and individuals including the Canadian oil and gas industry and Daylight. The slowing global economy has resulted in a decline in commodity prices and the unit price of Daylight and its peers. Looking forward, our industry will see the impact in its funds from operations, debt levels, capital expenditures, cash distributions and payout ratios. The Trust continues to be in a solid financial position at the end of Q1 2009, with a net debt to annualized cash flow ratio of 1.6 times, over $110 million of available capacity on our bank credit facility excluding our recent $172 million equity financing, an effective hedging program with 42% of guided 2009 production volumes hedged at attractive prices and an excellent portfolio of internal development prospects. The continued success of our oil and gas operations over the past year and the financial discipline we have exercised has positioned us quite favorably for the current economic circumstances. Using this financial flexibility, Daylight will continue to pursue selected strategic acquisitions and opportunities that create value for our Unitholders.

Daylight's high-end technical team integrates and emphasizes our exploitation, reservoir engineering, production optimization, geological and geophysical expertise to identify and capture reserves and production addition opportunities for the delivery of long term value creation to our Unitholders. Our team has developed a multi-year inventory of repeatable, low risk exploitation projects with substantial potential reserve additions on assets we currently own and control. Daylight's inventory includes a significant breadth of prospects across our high quality asset base.

With continued solid results, both operationally and financially, Daylight targets to substantially fund our capital expenditures and distributions with internally generated funds from operations over the longer term. This approach provides the Trust with the financial flexibility to execute on strategic opportunities.

An updated corporate presentation is available on Daylight's website at www.daylightenergy.ca.

Signed:

Anthony Lambert, President & CEO

May 6, 2009

MANAGEMENT'S DISCUSSION AND ANALYSIS

This Management's Discussion & Analysis ("MD&A") is dated May 6, 2009 and should be read in conjunction with the accompanying unaudited interim consolidated financial statements and notes for the three months ended March 31, 2009 and 2008 as well as the MD&A and audited consolidated financial statements and notes for the years ended December 31, 2008 and 2007. The consolidated financial statements and other financial data presented have been prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"). The following MD&A compares the results of the three months ended March 31, 2009 ("Q1 2009") to the three months ended December 31, 2008 ("Q4 2008") and to the three months ended March 31, 2008 ("Q1 2008"). All references are to Canadian dollars unless otherwise indicated.

NON-GAAP MEASURES

Daylight Resources Trust ("Daylight" or the "Trust") utilizes the following terms for measurement within the MD&A that do not have standardized prescribed meaning under GAAP and these measurements may not be comparable with the calculation of similar measurements of other entities.

"Funds from operations" and "funds from operations per unit" are terms utilized by Daylight to evaluate operating performance and assess leverage. Daylight considers funds from operations to be an important measure of Daylight's ability to generate the funds necessary to pay distributions, repay debt and finance capital expenditures. Funds from operations does not represent net income for the period nor should it be viewed as an alternative to net income or other measures of financial performance calculated in accordance with GAAP. All references to funds from operations throughout the MD&A are based on cash provided by operating activities before the change in non-cash operating working capital and asset retirement expenditures since Daylight believes the timing of collection, payment or incurrence of these items involves a high degree of discretion and as such these items are not useful for evaluating Daylight's operating performance. A reconciliation of cash provided by operating activities to funds from operations follows.



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(000s) Q1 Q4 Q1
2009 2008 2008
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Cash provided by operating activities $ 47,429 $ 47,416 $ 43,516
Change in non-cash operating working capital (3,545) 1,329 14,088
Asset retirement expenditures 1,011 1,330 1,063
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Funds from operations $ 44,895 $ 50,075 $ 58,667
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"Payout ratio" is a term utilized to evaluate financial flexibility and the capacity to fund distributions. Payout ratio is defined on a percentage basis as distributions declared divided by funds from operations. Daylight believes that a payout ratio above 100% is a concern as it indicates that no funds from operations are being retained to finance capital expenditures or to repay debt.

"Operating netback" is a term utilized by Daylight to evaluate the operating performance of petroleum and natural gas assets. The term operating netback is defined as petroleum and natural gas revenues less royalties, realized gain (loss) on derivative contracts, operating and transportation expenses.

"boe" is a term utilized by Daylight in relation to reserves or production to combine the volumetric measures of natural gas, light oil, heavy oil and natural gas liquids ("NGLs") to a common "barrel of oil equivalent" term of measurement. Natural gas volumes have been converted at the ratio of 6,000 cubic feet of natural gas to one boe and this conversion ratio is based upon an energy equivalent conversion method primarily applicable at the burner tip and does not represent value equivalence at the wellhead. Light oil, heavy oil and NGLs have been converted at the ratio of one barrel of these liquids to one boe. Use of the terms boe and amounts per boe without reference to the underlying commodity may be misleading.

FORWARD LOOKING STATEMENTS

Certain statements contained within this MD&A, and in certain documents incorporated by reference into this document, constitute forward-looking statements. These statements relate to future events or our future performance. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "budget", "plan", "continue", "estimate", "expect", "forecast", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. We believe the expectations reflected in these forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in, or incorporated by reference into, this MD&A should not be unduly relied upon. These statements speak only as of the date of this MD&A or as of the date specified in the documents incorporated by reference into this MD&A, as the case may be.

This MD&A, and the documents incorporated by reference, contain forward-looking statements pertaining to the following:

- the performance characteristics of our oil and natural gas properties;

- the size of our oil, natural gas liquids and natural gas reserves and production levels;

- estimates of future cash flow and distributions;

- projections of market prices and costs and the related sensitivities to distributions;

- drilling plans and timing of drilling, recompletion and tie-in of wells;

- weighting of production between different commodities;

- commodity prices, exchange rates and interest rates;

- expected levels of royalty rates, operating costs, general and administrative costs, costs of services and other costs and expenses;

- capital expenditure programs and other expenditures and the timing and method of financing thereof;

- supply of and demand for oil, natural gas liquids and natural gas;

- expectations regarding our ability to raise capital and to continually add to reserves through acquisitions and development;

- the existence, operation and strategy of our commodity price risk management program;

- the approximate and maximum amount of forward sales and hedging to be employed by us;

- our acquisition strategy, the criteria to be considered in connection therewith and the benefits to be derived therefrom;

- our ability to grow or sustain production and reserves through prudent management;

- the emergence of accretive growth opportunities and continued access to capital markets;

- our future operating and financial results;

- schedules and timing of certain projects and our strategy for future growth; and

- treatment under governmental and other regulatory regimes and tax, environmental and other laws.

In particular, this MD&A contains the following forward-looking statements pertaining to the following:

- production volumes;

- timing of cash flows;

- future oil and gas prices;

- operating costs;

- royalty rates;

- future development, exploration, and acquisition and development activities and related expenditures;

- the amount of future asset retirement obligations;

- future liquidity and future financial capacity;

- distributions to unitholders;

- future tax treatment of the Trust; and

- future structure of the Trust and its subsidiaries.

With respect to forward-looking statements contained in this MD&A and the documents incorporated by reference herein, we have made assumptions regarding, among other things:

- future oil and natural gas prices and differentials between light, medium and heavy oil prices;

- the continued availability of capital, undeveloped lands and skilled personnel;

- the costs of expanding our property holdings;

- the ability to obtain equipment in a timely manner to carry out exploration, development and exploitation activities;

- the ability to obtain financing on acceptable terms;

- the ability to add production and reserves through exploration, development and exploitation activities; and

- the continuation of the current tax and regulatory regime and other assumptions contained in this MD&A and the documents incorporated by reference herein.

The actual results could differ materially from those anticipated in these forward-looking statements as a result of the risk factors set forth below and elsewhere in this MD&A and the documents incorporated by reference into this document:

- volatility in market prices for oil, natural gas liquids and natural gas;

- counterparty credit risk;

- access to capital;

- changes or fluctuations in oil, natural gas liquids and natural gas production levels;

- liabilities inherent in oil and natural gas operations;

- adverse regulatory rulings, orders and decisions;

- attracting, retaining and motivating skilled personnel;

- uncertainties associated with estimating oil and natural gas reserves;

- competition for, among other things, capital, acquisitions of reserves, undeveloped lands, and services;

- incorrect assessments of the value of acquisitions and targeted exploration and development assets;

- fluctuations in foreign exchange or interest rates;

- stock market volatility, market valuations and the market value of the securities of Daylight;

- failure to realize the anticipated benefits of acquisitions;

- actions by governmental or regulatory authorities including changes in royalty structures and programs and income tax laws (including those relating to mutual fund trusts or investment eligibility) or changes in tax laws and incentive programs relating to the oil and gas industry and income trusts;

- limitations on insurance;

- changes in environmental or other legislation applicable to our operations, and our ability to comply with current and future environmental and other laws;

- geological, technical, drilling and processing problems and other difficulties in producing oil, natural gas liquids and natural gas reserves; and

- the other factors discussed under "Risks and Uncertainties" in the annual Management's Discussion and Analysis.

Statements relating to "reserves" or "resources" are by their nature deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the resources and reserves described can be profitably produced in the future.

Readers are cautioned that the foregoing lists of factors are not exhaustive. The forward-looking statements contained in this MD&A and the documents incorporated by reference herein are expressly qualified by this cautionary statement. We do not undertake any obligation to publicly update or revise any forward-looking statements except as required by applicable securities law.



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HIGHLIGHTS
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Financial
(CDN$ thousands, except unit, per unit and Q1 Q4 Q1
operational data) 2009 2008 2008
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Petroleum and natural gas revenues $ 71,893 $ 91,311 $113,986
Royalties (14,111) (18,814) (21,733)
Realized gain on derivative contracts 25,285 12,230 -
Operating expenses (24,441) (24,038) (21,769)
Transportation expenses (2,310) (2,423) (1,721)
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Operating netback 56,316 58,266 68,763
G&A - cash charge (6,885) (4,483) (3,679)
Cash financial charges (4,536) (3,708) (6,417)
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Funds from operations 44,895 50,075 58,667
Per unit - Basic 0.50 0.56 0.75
- Diluted 0.45 0.52 0.66
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Cash provided by operating activities 47,429 47,416 43,516
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Net income 6,071 44,424 3,941
Per unit - Basic 0.07 0.50 0.05
- Diluted 0.07 0.48 0.05
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Cash distributions declared 21,657 35,193 23,333
Per unit 0.24 0.39 0.30
Payout ratio 48% 70% 40%
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Capital expenditures 59,413 38,766 43,630
Cash property acquisitions - 66,571 -
Non-cash property acquisitions - 26,887 -
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Market value of investments 2,013 2,285 15,172
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Bank debt 238,359 219,853 268,410
Working capital deficiency (1) 60,981 42,275 29,908
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Convertible debentures 115,836 115,201 120,170
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Total assets 1,077,667 1,058,195 949,143
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Units outstanding (000s) - Basic 90,239 90,239 77,914
- Diluted 106,517 106,050 94,096
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Operational (Per boe amounts may not add
exactly due to rounding)
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Average daily production
Natural gas (mcf/d) 91,668 82,572 67,691
Light oil (bbls/d) 3,935 4,086 5,174
Heavy oil (bbls/d) 2,117 2,798 2,181
NGLs (bbls/d) 1,480 1,217 1,167
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Oil & NGLs (bbls/d) 7,532 8,101 8,522
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Combined (boe/d) 22,810 21,863 19,804
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Average prices received
Natural gas ($/mcf) $ 5.26 $ 7.06 $ 7.92
Light oil ($/bbl) 46.17 55.28 91.40
Heavy oil ($/bbl) 37.57 45.20 71.54
NGLs ($/bbl) 38.81 43.27 74.91
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Oil & NGLs ($/bbl) $ 42.31 $ 50.00 $ 84.06
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Combined ($/boe) $ 35.02 $ 45.40 $ 63.25
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$ per boe
Petroleum and natural gas revenues $ 35.02 $ 45.40 $ 63.25
Royalties (6.87) (9.35) (12.06)
Realized gain on derivative contracts 12.32 6.08 -
Operating expenses (11.91) (11.95) (12.08)
Transportation expenses (1.13) (1.20) (0.95)
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Operating netback $ 27.43 $ 28.98 $ 38.16
G&A - cash charge (3.35) (2.23) (2.04)
Cash financial charges (2.21) (1.84) (3.56)
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Funds from operations $ 21.87 $ 24.91 $ 32.56
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Wells drilled - gross (net) 20 (6.1) 10 (3.2) 22 (8.9)
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(1) Excludes unrealized gain (loss) on derivative contracts and future
income tax liability.


RESULTS OF OPERATIONS

Daylight is an oil and natural gas energy trust applying a high-end technical and business execution team to a high quality asset base to provide sustainable production and reserves levels. Daylight operates in the Western Canadian Sedimentary Basin. Daylight's trust units, 8.5% Convertible Debentures Series A, 8.5% Convertible Debentures Series B, and 10.0% Convertible Debentures Series C trade on the Toronto Stock Exchange ("TSX") with the symbols DAY.UN, DAY.DB, DAY.DB.B, and DAY.DB.C respectively.

The continued global economic uncertainty and low commodity prices have affected the Canadian oil and gas industry and Daylight. During these challenging economic times, the Trust has maintained its strong financial position with a net debt to annualized cash flow ratio of 1.6 times, over $110 million of available capacity on our bank credit facility at March 31, 2009, and an extensive portfolio of internal development prospects. Subsequent to March 31, 2009, the Trust reached an agreement with a syndicate of underwriters to issue 24,630,000 trust units on a bought deal basis for gross proceeds of $172 million which includes the exercise of the over-allotment option (see "Liquidity and Capital Resources"). The Trust also announced the acquisition of a private oil and gas company to close in June 2009 subject to approvals (see "Capital Expenditures, Acquisitions and Divestitures"). The Trust will continue to pursue strategic opportunities as they arise with a focus on maintaining financial flexibility.

Production

Daylight's total production volumes for Q1 2009 averaged 22,810 boe per day, a 4% increase from Q4 2008. Q1 2009 production was comprised of 91,668 mcf per day of natural gas, 3,935 bbls per day of light oil, 2,117 bbls per day of heavy oil and 1,480 bbls per day of NGLs. Production for Q1 2009 increased 15% from Q1 2008 due to our successful capital expenditure program as well as the acquisition of Athlone Energy Ltd. ("Athlone") on September 17, 2008, the acquisition of West Central properties on October 31, 2008, the acquisition of Elmworth properties on December 1, 2008, net of the disposition of our Sturgeon Lake property on September 30, 2008.

With the continuing addition of new production volumes, Daylight expects production to average approximately 22,500 to 23,500 boe per day for 2009. Daylight's 2009 production guidance is based on the investment of $125 to $140 million in our 2009 internal capital program prior to the acquisition of a private oil and gas company. Updated production guidance will be provided upon the closing of the acquisition. See the "Capital Expenditures, Acquisitions and Divestitures" section of this MD&A for additional information on the acquisitions of Athlone, West Central properties, and Elmworth properties.



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Q1 Q4 Q1
2009 2008 2008
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Natural gas (mcf/d) 91,668 82,572 67,691
Light oil (bbls/d) 3,935 4,086 5,174
Heavy oil (bbls/d) 2,117 2,798 2,181
NGLs (bbls/d) 1,480 1,217 1,167
----------------------------------------------------------------------------
Combined oil & NGLs (bbls/d) 7,532 8,101 8,522
----------------------------------------------------------------------------
Combined all products (boe/d) 22,810 21,863 19,804
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Production replacement activities for calendar 2009 are focused on the following:

- Peace River Arch properties of Elmworth and Bilbo

- West Central properties of Obed, Pine Creek and Kaybob

Commodity Prices

Daylight's natural gas prices are influenced by both North American and, more recently, global supply and demand balance, seasonal changes, storage levels, the Canadian to US dollar exchange rate and transportation capacity constraints. Daylight's realized natural gas price has a high correlation to the Alberta benchmark price ("AECO") which provides pricing for natural gas based on heating value.

Daylight's oil prices are significantly influenced by global supply and demand conditions. Daylight's realized light oil price has a high correlation to the US benchmark West Texas Intermediate at Cushing, Oklahoma ("WTI") price and the Canadian to US dollar exchange rate. Canadian light oil prices, including the Edmonton par price, correlate to refinery postings that adjust WTI for the Canadian to US dollar exchange rate as well as transportation costs and quality differentials.

Daylight's realized heavy oil price is lower than its light oil price and the historical correlation with Edmonton par price and Bow River price, a heavy oil benchmark, is not overly strong. Heavy oil requires increased refining and other costs, such as condensate for transportation blending, which reduce the realized price of this product. For the first nine months of 2008, the Edmonton par price and Bow River price were very strong which resulted in an enhanced price realization by Daylight on its heavy oil production. In Q4 2008 and Q1 2009, the Edmonton par price and Bow River price dropped significantly resulting in lower realized prices by Daylight on its heavy oil production.

NGLs include condensate, pentane, butane and propane. Prices for NGLs have their own market dynamic with a relatively strong correlation to light oil prices for condensate and pentane, while butane and propane trade at varying discounts due to market conditions including supply and demand.



----------------------------------------------------------------------------
Market prices Q1 Q4 Q1
2009 2008 2008
----------------------------------------------------------------------------
AECO daily ($Cdn/mcf) $ 4.79 $ 6.62 $ 7.77
WTI ($US/bbl) 43.18 59.06 97.86
Edmonton par ($Cdn/bbl) 50.27 63.62 98.08
Bow River ($Cdn/bbl) 43.82 48.75 77.10
Exchange rate ($Cdn/$US) 0.8042 0.8277 0.9954
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Daylight prices realized Q1 Q4 Q1
2009 2008 2008
----------------------------------------------------------------------------
Natural gas ($/mcf) $ 5.26 $ 7.06 $ 7.92
Light oil ($/bbl) 46.17 55.28 91.40
Heavy oil ($/bbl) 37.57 45.20 71.54
NGLs ($/bbl) 38.81 43.27 74.91
----------------------------------------------------------------------------
Combined oil & NGLs ($/bbl) 42.31 50.00 84.06
----------------------------------------------------------------------------
Combined all products ($/boe) $ 35.02 $ 45.40 $ 63.25
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Daylight's natural gas price during Q1 2009 was $5.26 per mcf, a 10% premium to AECO, which is a 25% decrease from the Q4 2008 natural gas price of $7.06 per mcf, a 7% premium to AECO. Daylight's Q1 2009 natural gas price was 34% lower than the Q1 2008 natural gas price of $7.92 per mcf, which is consistent with the 38% decrease to AECO between these two periods. During Q1 2009, the daily AECO pricing for natural gas ranged from a low of approximately $3.33 per mcf to a high of approximately $6.89 per mcf. Throughout the last half of 2008 and first three months of 2009, approximately half of Daylight's natural gas was sold at monthly index prices. Monthly index prices were significantly higher than average daily prices during this period, resulting in Daylight realizing a higher premium than usual. The volatility in natural gas prices can cause the premium realized to increase or decrease.

Daylight's Q1 2009 light oil realized $46.17 per bbl, 92% of Edmonton par, while Q4 2008 light oil realized $55.28 per bbl, 87% of Edmonton par, resulting in a quarter over quarter decrease of 16%. Due to the volatility of crude oil prices during Q4, Daylight experienced a larger than normal differential to Edmonton par. Daylight's light oil price for Q1 2009 was 49% lower than the Q1 2008 light oil price of $91.40 per bbl, which was 93% of Edmonton par. Changes in the Canadian dollar to US dollar exchange rate affect the Canadian dollar Edmonton par and Daylight's realized light oil price relative to the US dollar WTI, with a higher exchange rate generally reducing Edmonton par and Daylight's realized light oil price relative to WTI and a lower exchange rate generally increasing Edmonton par and Daylight's realized light oil price relative to WTI. The Canadian dollar to US dollar exchange rate for Q1 2009 was 0.8042 which generally put upward movement on Edmonton par and Daylight's realized light oil price in the quarter when compared to Q4 2008 with an exchange rate of 0.8277 and upward movement compared to Q1 2008 with an exchange rate of 0.9954.

Daylight's heavy oil production is concentrated at two properties, with Wildmere producing approximately 90% of Q1 2009 volumes and Chipman producing the remaining 10%. Daylight's Q1 2009 heavy oil price of $37.57 per bbl, 86% of Bow River, is 17% lower than the Q4 2008 heavy oil price of $45.20 per bbl, 93% of Bow River. Daylight's Q1 2009 heavy oil price was 47% lower than the Q1 2008 heavy oil price of $71.54 per bbl, also 93% of Bow River.

Daylight's combined oil and NGLs price during Q1 2009 was $42.31 per bbl, 15% lower than Q4 2008 and 50% lower than Q1 2008.

The impact of derivative contracts is recorded within Daylight's gain (loss) on financial instruments. As at March 31, 2009, Daylight had derivative contracts in place for a portion of natural gas production volumes for the period April 1, 2009 to October 31, 2009 and a portion of crude oil production volumes from April 1, 2009 through December 31, 2009. Please refer to the "Financial Instruments" section of this MD&A for further details.

Daylight's realized prices are expected to continue to correlate with market prices during 2009.



Revenue
----------------------------------------------------------------------------
(000s) Q1 Q4 Q1
2009 2008 2008
----------------------------------------------------------------------------
Natural gas $ 43,419 $ 53,632 $ 48,798
Light oil 16,351 20,782 43,036
Heavy oil 7,159 11,635 14,198
NGLs 5,170 4,846 7,955
Other (206) 416 (1)
----------------------------------------------------------------------------
Total $ 71,893 $ 91,311 $ 113,986
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The 4% increase in Q1 2009 production offset by a 23% decrease in the price on a combined boe basis resulted in a 21% decrease in total revenue to $71.9 million from Q4 2008. Natural gas sales for Q1 2009 were $43.4 million, a decrease of 19% from Q4 2008. Light oil sales for Q1 2009 were $16.4 million, down 21% from Q4 2008. Heavy oil sales for Q1 2009 were $7.2 million, down 38% from Q4 2008, and NGLs sales for Q1 2009 were $5.2 million, up 7% from Q4 2008. Total revenue decreased 37% in Q1 2009 from Q1 2008, consistent with a 45% decrease in the average realized price on a combined boe basis partially offset by a 15% increase in production volumes.

Royalties

Royalty payments are made to the owners of the mineral rights on leases, which include provincial governments (Crown) and freehold landowners, as well as to other third parties by way of contractual overriding royalties.

In Alberta, royalties on natural gas and NGLs are charged by the government based on an established monthly Reference Price. The Reference Price is meant to reflect the average price for natural gas and NGLs in Alberta. Gas cost allowance, custom processing credits and other incentive programs reduce the effective royalty rate.

Overriding royalties are generally paid to third parties where Daylight has entered into agreements to earn an interest in their mineral rights by investing capital in their property.

Oil royalty rates are generally a function of production rates on a per well basis and prices. They are also subject to certain reductions and incentives. Oil Crown royalties in Alberta are generally satisfied by delivering the required volume of oil to the Alberta provincial government.



----------------------------------------------------------------------------
Royalties by type (000s) Q1 Q4 Q1
2009 2008 2008
----------------------------------------------------------------------------
Crown royalties $ 11,067 $ 15,315 $ 16,862
Freehold royalties 1,111 1,288 2,177
Overriding royalties 1,933 2,211 2,694
----------------------------------------------------------------------------
Total $ 14,111 $ 18,814 $ 21,733
----------------------------------------------------------------------------
$ per boe $ 6.87 $ 9.35 $ 12.06
----------------------------------------------------------------------------
% of revenue 19.6 20.6 19.1
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Royalties by commodity (000s) Q1 Q4 Q1
2009 2008 2008
----------------------------------------------------------------------------
Natural gas $ 7,283 $ 10,195 $ 8,464
Oil and NGLs 6,828 8,619 13,269
----------------------------------------------------------------------------
Total $ 14,111 $ 18,814 $ 21,733
----------------------------------------------------------------------------
Natural gas ($/boe) $ 5.30 $ 8.05 $ 8.24
Oil and NGLs ($/boe) 10.07 11.56 17.11
----------------------------------------------------------------------------
Total ($/boe) $ 6.87 $ 9.35 $ 12.06
----------------------------------------------------------------------------
Natural gas (% of revenue) 16.8 19.0 17.3
Oil and NGLs (% of revenue) 23.8 23.1 20.4
----------------------------------------------------------------------------
Total (% of revenue) 19.6 20.6 19.1
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Overall royalty rates decreased to 19.6% of revenue in Q1 2009 from 20.6% of revenue in Q4 2008. Natural gas royalty rates decreased to 16.8% of revenue compared to 19.0% of revenue in Q4 2008 due to royalty holidays on certain deep gas wells. Oil and NGLs royalty rates increased to 23.8% of revenue during Q1 2009 as compared to 23.1% of revenue in Q4 2008. Total royalty rates increased to 19.6% of revenue for Q1 2009 compared with 19.1% of revenue for Q1 2008.

On October 25, 2007, the Alberta government introduced a proposed New Royalty Framework ("NRF") which took effect January 1, 2009. On April 10, 2008, the Alberta Government announced revisions to the NRF to increase royalty rates on conventional and non-conventional oil and natural gas production whereby royalty rates may increase to maximum rates of 50%, to introduce broader ranges of commodity prices in its sliding scale royalty calculations, and to eliminate royalty incentive and holiday programs with the exception of specific programs relating to deep oil and natural gas drilling, innovative technology and enhanced recovery programs. Subsequent to the legislation of the NRF in November 2008, the Transitional Royalty Plan ("TRP") was introduced in response to the economic downturn and declining commodity prices. The TRP offers reduced royalty rates for wells drilled on or later than November 19, 2008 which meet certain depth criteria. The TRP is in place for a maximum period of five years up to December 31, 2013.

On March 3, 2009, an incentive program designed to encourage the execution of new drilling projects in Alberta was announced in response to the slowdown in drilling activity throughout the province of Alberta. The three-point incentive program provides for a drilling royalty credit for new conventional oil and natural gas wells that initiate drilling on or after April 1, 2009 and that complete drilling by March 31, 2010. The three-point incentive program also provides a reduced royalty rate on new wells for the first year of production up to an established total production volume. This program is expected to positively impact the Trust. The Trust adjusted portions of its capital program for Q1 2009 wells to take advantage of this program.

Approximately 95% of Daylight's reserves and production are in Alberta, with the balance located in BC and Saskatchewan. Approximately 78% of current production is subject to Crown royalties, which are affected directly by the government royalty programs, and the remaining 22% of Daylight's 2009 royalties are related to freehold and override charges, which are not directly affected by these programs. Consequently, the NRF, TRP and the new three-point royalty incentive program will impact Daylight's royalty rates, the effect of which is dependent upon commodity prices.

Future reserve and production addition activities are expected to be significantly impacted by changes to the royalty system. The Trust's depth of prospect inventory allows Daylight to select capital expenditure programs that provide the greatest value to our unitholders in the context of the expected change to the royalty system.

Financial Instruments

Financial instruments comprise accounts receivable, investments, accounts payable and accrued liabilities, derivative contracts, cash distributions payable, bank debt, and convertible debentures. Unless otherwise noted, carrying values reflect the current fair value of the Trust's financial instruments due to the short term to maturity. The Trust's investments held for trading include the shares of Pegasus Oil & Gas Inc. ("Pegasus") and Trafalgar Energy Ltd. ("Trafalgar") (see "Investments" section below). The Trust also has an equity investment in Bengal Energy Ltd. ("Bengal") (see "Investments" section below). The investments held for trading have a fair value based on quoted market values of $0.8 million as at March 31, 2009. During Q1 2009 Daylight experienced a $0.1 million unrealized loss on these investments held for trading compared to a $4.6 million loss in Q4 2008. The investment in Bengal has a fair value based on quoted market value of $1.2 million as at March 31, 2009. At December 31, 2008, the investment in Bengal was written down to its market value.

The Trust's long-term debt bears interest at a floating market rate and accordingly, the fair market value approximates the carrying value. The convertible debentures outstanding at March 31, 2009, with a face value of $132.3 million, had a fair value based on quoted market value of $126.0 million. The convertible debentures outstanding at May 6, 2009, with a face value of $132.3 million, had a fair value based on quoted market value of $132.2 million.

The Trust may enter into financial or commodity derivative contracts to manage commodity prices, foreign exchange and interest rate risk. The current 12 month forward strip for AECO natural gas is approximately $5.20 per mcf and WTI oil is approximately US$63.00 per barrel which is equivalent to approximately $73.00 Canadian per barrel.



As at March 31, 2009, Daylight had the following derivative contracts in
place:
----------------------------------------------------------------------------
Type of Contract Commodity Hedged Volume(3) Hedge Price Hedge Period
----------------------------------------------------------------------------
Financial (Swap)(1) Natural gas 35,000 GJ/d Cdn$7.58/GJ Apr 1/09 to
Oct 31/09
Financial (Swap)(1) Natural gas 10,000 GJ/d Cdn$7.59/GJ Apr 1/09 to
Oct 31/09
Financial (Swap)(1) Natural gas 5,000 GJ/d Cdn$7.63/GJ Apr 1/09 to
Oct 31/09
Financial (Collar)(2) Crude oil 1,000 bbl/d Cdn$110.00 - Apr 1/09 to
$206.00/bbl Dec 31/09
Financial (Collar)(2) Crude oil 1,000 bbl/d Cdn$110.00 - Apr 1/09 to
$205.55/bbl Dec 31/09
Financial (Collar)(2) Crude oil 1,000 bbl/d Cdn$110.00 - Apr 1/09 to
$205.00/bbl Dec 31/09
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) Swap indicates fixed price.
(2) Collar price indicates floor (minimum) and ceiling (maximum).
(3) A GJ converts to a mcf at the rate of 1.055056 GJs per mcf.


Financial or commodity derivative contracts used to manage risk are subject to periodic settlements throughout the term of the instruments. Such settlements may result in a gain or loss which is recognized as a realized derivative gain or loss at the time of settlement. The mark-to-market value of a derivative contract outstanding at the end of a reporting period reflects the value of the derivative contracts based upon market conditions existing as of that date. Any change in value from that determined at the end of the prior period is recognized as an unrealized gain or loss on derivative contracts.



----------------------------------------------------------------------------
(000s) Q1 Q4 Q1
2009 2008 2008
----------------------------------------------------------------------------
Realized gain on derivative contracts $ 25,285 $ 12,230 $ -
Unrealized gain (loss) on derivative contracts 1,837 52,933 (22,270)
Unrealized loss on investments held for trading (103) (4,592) (133)
----------------------------------------------------------------------------
Gain (loss) on financial instruments $ 27,019 $ 60,571 $(22,403)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


----------------------------------------------------------------------------
($/boe) Q1 Q4 Q1
2009 2008 2008
----------------------------------------------------------------------------
Realized gain on derivative contracts $ 12.32 $ 6.08 $ -
Unrealized gain (loss) on derivative contracts 0.89 26.32 (12.36)
Unrealized loss on investments held for trading (0.05) (2.28) (0.07)
----------------------------------------------------------------------------
Gain (loss) on financial instruments $ 13.16 $ 30.11 $ (12.43)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Daylight recognized a realized gain of $25.3 million in Q1 2009 compared to a $12.2 million realized gain in Q4 2008. Daylight experienced a $1.8 million unrealized gain on its derivative contracts during Q1 2009 compared to a $52.9 million unrealized gain in Q4 2008 and a $22.3 million unrealized loss during the same period last year. At March 31, 2009, the unrealized gain on derivative contracts was $73.4 million.

Operating Expenses

Operating expenses include activities in the field required to operate wells and facilities, lift to surface, gather, process, treat and store production.



----------------------------------------------------------------------------
Q1 Q4 Q1
(000s) 2009 2008 2008
----------------------------------------------------------------------------
Operating expenses $ 24,441 $ 24,038 $ 21,769
$ per boe $ 11.91 $ 11.95 $ 12.08
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Daylight's operating costs during Q1 2009 decreased slightly to $11.91 per boe as compared to Q4 2008 at $11.95 per boe and were 1% lower than Q1 2008, at $12.08 per boe. Daylight expects its operating costs to be approximately $11.50 per boe for the full year 2009.

Transportation Expenses

Transportation expenses are defined by the point of legal custody transfer of the commodity and are influenced by the nature of the production, location, availability of transportation and the sales point. The cost of delivering production to the custody transfer point is shown separately as transportation expense.

Daylight generally sells its light oil and NGLs production at the lease with the purchaser taking legal custody of the oil and paying a price for the oil at that delivery point. Daylight's heavy oil, and a small portion of its light oil production, are delivered to a terminal by truck and as such, bear trucking charges which are a transportation expense. Natural gas is usually transported to an established delivery point such as AECO in Alberta and then transferred to the purchaser. Transportation expense decreased 6% to $1.13 per boe in Q1 2009 compared to $1.20 per boe in Q4 2008 and increased 19% compared to the $0.95 per boe in Q1 2008. Transportation expenses increased in Q4 2008 due to the addition of Athlone volumes and new production in Cecil that required trucking. Q1 2009 was down 6% from Q4 2008 due to the decrease in heavy oil production.



----------------------------------------------------------------------------
(000s) Q1 Q4 Q1
2009 2008 2008
----------------------------------------------------------------------------
Transportation expenses $ 2,310 $ 2,423 $ 1,721
$ per boe $ 1.13 $ 1.20 $ 0.95
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Operating Netbacks

The following table provides detail regarding Daylight's operating netbacks
on a per boe basis.

----------------------------------------------------------------------------
$ per boe Q1 Q4 Q1
2009 2008 2008
----------------------------------------------------------------------------
Petroleum and natural gas revenues $ 35.02 $ 45.40 $ 63.25
Royalties (6.87) (9.35) (12.06)
Realized gain on derivative contracts 12.32 6.08 -
Operating expenses (11.91) (11.95) (12.08)
Transportation expenses (1.13) (1.20) (0.95)
----------------------------------------------------------------------------
Operating netback $ 27.43 $ 28.98 $ 38.16
----------------------------------------------------------------------------
----------------------------------------------------------------------------

General and Administrative Expenses

The following tables provide detail regarding Daylight's general and
administrative expenses ("G&A") on a total and per boe basis.

----------------------------------------------------------------------------
(000s) Q1 Q4 Q1
2009 2008 2008
----------------------------------------------------------------------------
Gross G&A $ 11,387 $ 8,277 $ 6,825
Operating recoveries (1,637) (1,579) (1,541)
Capitalized costs (2,865) (2,215) (1,605)
----------------------------------------------------------------------------
G&A - cash charge 6,885 4,483 3,679
Unit-based compensation 960 815 2,295
----------------------------------------------------------------------------
Net G&A $ 7,845 $ 5,298 $ 5,974
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
$ per boe Q1 Q4 Q1
2009 2008 2008
----------------------------------------------------------------------------
Gross G&A $ 5.55 $ 4.12 $ 3.79
Operating recoveries (0.80) (0.79) (0.86)
Capitalized costs (1.40) (1.10) (0.89)
----------------------------------------------------------------------------
G&A - cash charge 3.35 2.23 2.04
Unit-based compensation 0.47 0.41 1.27
----------------------------------------------------------------------------
Net G&A $ 3.82 $ 2.64 $ 3.31
----------------------------------------------------------------------------
----------------------------------------------------------------------------


General and administrative expenses during Q1 2009 were $7.8 million ($3.82 per boe) including non-cash unit-based compensation of $1.0 million ($0.47 per boe). General and administrative expenses for Q4 2008 were $5.3 million ($2.64 per boe) including non-cash unit-based compensation of $0.8 million ($0.41 per boe). G&A expenses for Q1 2008 were $6.0 million ($3.31 per boe) including non-cash unit-based compensation of $2.3 million ($1.27 per boe). The Q1 2009 G&A cash expenses were $1.12 per boe higher than Q4 2008 and $1.31 per boe higher than Q1 2008 due to bonus payments made during Q1 2009 regarding 2008 performance as Daylight provided the highest total return to unitholders in our peer group.

Unit-based compensation expense is an allocation of the fair value of Restricted Trust Unit Awards ("RTUs") and Performance Trust Unit Awards ("PTUs") over their three year vesting period starting at the date of grant. Unit-based compensation expense also includes amounts relating to the Employee Bonus Plan and Employee Unit Ownership Plan that were settled in units issued from treasury. The Q1 2009 unit-based compensation expense per boe was 15% higher than Q4 2008 and 63% lower than Q1 2008. Q1 2008 includes amounts related to the Employee Bonus Plan and Employee Unit Ownership Plan that were settled in units issued from treasury. No trust units were issued from treasury under the Employee Bonus Plan or the Employee Unit Ownership Plan during Q1 2009.

Related Party Transactions

Daylight and Midnight Oil Exploration Ltd. ("MOX") are considered related, as Daylight's Chairman is a director and officer of MOX. In addition, Daylight's Chief Executive Officer and director is also a director of MOX and Daylight's Corporate Secretary is also MOX's Corporate Secretary. Daylight and MOX are joint venture partners in certain properties, and as a result, revenues and costs related to these properties are allocated to each partner under standard joint venture billing arrangements. Each partner's costs and revenues are based on the exchange amounts which reflect actual third party costs incurred and revenue received. All transactions are conducted under standard business terms and are considered within the normal course of Daylight's business activities and operations. In addition, certain administrative services which provide reasonable economy and do not involve competitive issues are provided to MOX by Daylight on a fixed fee basis negotiated by the parties, which is considered comparable to the fee an independent third party would charge for the services, and may be cancelled by either party.

For the three months ended March 31, 2009, Daylight charged MOX $0.2 million (2008 - $0.4 million) for administrative services and premises costs with a payable balance, which includes joint venture and commodity marketing amounts of approximately $11.4 million due to MOX as at March 31, 2009 (December 31, 2008 - $2.8 million). At March 31, 2009, MOX held an advance capital deposit of $7.7 million (December 31, 2008 - $3.9 million) in conjunction with normal course oil and gas drilling activities.

On October 31, 2008, Daylight acquired from MOX certain petroleum and natural gas assets in the West Central area and entered a farmin arrangement on over 40 gross sections of land in the Elmworth and Peace River Arch areas in exchange for 3.75 million Daylight units and $2.0 million cash. Based on the exchange amount of $7.17 per unit, total consideration for the petroleum and natural gas assets was $28.9 million. The effective date of the purchase was October 1, 2008 and results from operations are included with those of the Trust commencing October 31, 2008. Results from operations and capital expenditures incurred from the effective date of October 1, 2008 to the closing date of October 31, 2008 have been recorded as an adjustment to the purchase equation. (See the "Capital Expenditures, Acquisitions and Divestitures" section of this MD&A.)

Financial Charges

Daylight incurs cash interest expense on its outstanding bank debt and convertible debentures. Daylight's effective bank debt interest rate was 2.2% for Q1 2009 as compared to 3.8% for Q4 2008 and 5.2% for Q1 2008. Daylight's bank debt interest rate is expected to continue to correlate with market interest rates during 2009. On December 19, 2008, Daylight issued $75 million principal amount of 10% Convertible Unsecured Subordinated Debentures, Series C ("Series C Debentures") for net proceeds of $71.7 million (see "Liquidity and Capital Resources" section below). On October 3, 2007, Daylight issued $125 million principal amount of 8.5% Convertible Unsecured Subordinated Debentures, Series B ("Series B Debentures") for net proceeds of $119.6 million, On October 21, 2004, Daylight issued $80 million principal amount of 8.5% Convertible Unsecured Subordinated Debentures, Series A ("Series A Debentures") for net proceeds of $76.8 million. Series A and Series B Debentures have a fixed interest rate of 8.5%. Series C Debentures have a fixed interest rate of 10.0%. Cash financial charges are influenced by both the interest rate and the level of debt outstanding.

Non-cash financial charges relate to amortization of costs incurred to establish bank credit facilities and issue convertible debentures as well as the accretion of the convertible debenture discount. The increase in total financial charges for Q1 2009 as compared to Q4 2008 is principally due to the Series C Debenture issuance which incurred three months of interest in Q1 2009. The decrease in total financial charges for Q1 2009 as compared to Q1 2008 is principally due to the decrease in the interest rate on bank debt and a lower average bank debt.



----------------------------------------------------------------------------
(000s) Q1 Q4 Q1
2009 2008 2008
----------------------------------------------------------------------------
Bank debt interest $ 1,485 $ 2,237 $ 3,700
Convertible debenture interest 3,051 1,471 2,717
----------------------------------------------------------------------------
Cash financial charges 4,536 3,708 6,417
Amortization of financial charges 27 27 27
Accretion of convertible debenture discount 661 274 454
----------------------------------------------------------------------------
Total $ 5,224 $ 4,009 $ 6,898
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
$ per boe Q1 Q4 Q1
2009 2008 2008
----------------------------------------------------------------------------
Bank debt interest $ 0.72 $ 1.11 $ 2.05
Convertible debenture interest 1.49 0.73 1.51
----------------------------------------------------------------------------
Cash financial charges 2.21 1.84 3.56
Amortization of financial charges 0.01 0.01 0.01
Accretion of convertible debenture discount 0.32 0.14 0.25
----------------------------------------------------------------------------
Total $ 2.54 $ 1.99 $ 3.82
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Depletion, Depreciation and Accretion

Daylight's depletion, depreciation and accretion for Q1 2009 totalled $42.7 million, which is 5% higher than Q4 2008. Q1 2009 charges increased 21% from Q1 2008, primarily due to higher production.



----------------------------------------------------------------------------
(000s) Q1 Q4 Q1
2009 2008 2008
----------------------------------------------------------------------------
Depletion and Depreciation $ 41,956 $ 39,907 $ 34,513
Accretion 745 630 662
----------------------------------------------------------------------------
Total $ 42,701 $ 40,537 $ 35,175
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
$ per boe) Q1 Q4 Q1
2009 2008 2008
----------------------------------------------------------------------------
Depletion and Depreciation $ 20.44 $ 19.84 $ 19.15
Accretion 0.36 0.31 0.37
----------------------------------------------------------------------------
Total $ 20.80 $ 20.15 $ 19.52
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Future Taxes

Daylight recorded a future income tax recovery of $3.8 million in Q1 2009, a future income tax expense of $7.3 million in Q4 2008, and a future income tax recovery of $6.0 million in Q1 2008. Daylight is a taxable entity under the Canadian Income Tax Act and is currently taxable only on income that is not distributed or distributable to its unitholders.

Daylight does not currently expect to pay any income taxes until at least 2011.



----------------------------------------------------------------------------
(000s) Q1 Q4 Q1
2009 2008 2008
----------------------------------------------------------------------------
Future Tax $ (3,791) $ 7,333 $ (5,990)
$ per boe $ (1.85) $ 3.65 $ (3.32)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


As at March 31, 2009, Daylight and its subsidiaries have tax pools of approximately $948 million. These tax pool balances are subject to change as tax returns are completed, annual claims are made, and reclassification of items between categories may occur.



----------------------------------------------------------------------------
(000s) 2009 2008
---------------------------------
Corporate Trust Combined Combined
----------------------------------------------------------------------------
Canadian exploration expense $ 73,000 $ - $ 73,000 $ 65,000
Canadian development expense 279,000 - 279,000 251,000
Canadian oil and gas property expense 60,000 82,000 142,000 134,000
Undepreciated capital cost 214,000 - 214,000 220,000
Non-capital losses 228,000 - 228,000 228,000
Cumulative eligible capital 4,000 - 4,000 4,000
Share and unit issue costs - 8,000 8,000 9,000
----------------------------------------------------------------------------
Total $ 858,000 $ 90,000 $ 948,000 $ 911,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Management and the Board of Directors continue to review the impact of federal legislation (Bill C-52) implementing a tax on publicly traded income trusts (the "SIFT Rules") on our business strategy. The SIFT Rules are not expected to affect the Trust until 2011 provided that the Trust does not exceed the normal growth guidelines which were amended in December 2008 to allow Trusts to accelerate use of their normal growth room rather than staging it over 2009 and 2010.

On March 4, 2009, new legislation was substantively enacted to change the provincial tax rate on income trusts from 13% per the SIFT Rules to a lower rate for income trusts based on the provincial tax rate in each province, which for the province of Alberta is 10%. Due to this change in legislation, Daylight recorded a future tax expense of $0.9 million at the Trust level. A reduction in rate would normally cause a future tax recovery; however, due to the Trust being in a future tax asset position, the change resulted in an expense.

On July 14, 2008, The Department of Finance of Canada released draft tax legislation (the SIFT conversion rules) that will facilitate the restructuring of income trusts into corporations. In general, the proposed amendments will permit a conversion to be tax deferred for both the unitholders and the trust. Management continues to analyze its business options for structural changes and to determine a course of action and potential restructuring to maximize value in the best interest of unitholders.

Net Income , Funds from Operations, and Cash Provided by Operating Activities

As a result of the previously discussed factors, Daylight recognized Q1 2009 net income of $6.1 million ($2.96 per boe, $0.07 per unit-basic, $0.07 per unit-diluted), funds from operations of $44.9 million ($21.87 per boe, $0.50 per unit-basic, $0.45 per unit-diluted) and cash provided by operating activities of $47.4 million. Actual results from the comparative periods are presented below.



----------------------------------------------------------------------------
(000s) Q1 Q4 Q1
2009 2008 2008
----------------------------------------------------------------------------
Net income $ 6,071 $ 44,424 $ 3,941
Per boe $ 2.96 $ 22.09 $ 2.19
----------------------------------------------------------------------------
Per Unit
Basic $ 0.07 $ 0.50 $ 0.05
Diluted $ 0.07 $ 0.48 $ 0.05
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Funds from operations $ 44,895 $ 50,075 $ 58,667
Per boe $ 21.87 $ 24.91 $ 32.55
----------------------------------------------------------------------------
Per Unit
Basic $ 0.50 $ 0.56 $ 0.75
Diluted $ 0.45 $ 0.52 $ 0.66
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash provided by operating activities $ 47,429 $ 47,416 $ 43,516
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Daylight's funds from operations are significantly influenced by commodity prices and production volumes.

Daylight's estimated sensitivity to changes in its commodity price, production volume and exchange rate assumptions for the full year 2009 are estimated as follows:

- $1.1 million per $0.10 change in natural gas price per mcf.

- $0.4 million per US$1.00 change in the WTI oil price per bbl.

- $1.1 million per 1 mmcf per day change in production.

- $1.0 million per 100 bbl per day change in light oil production.

- $1.0 million per 100 bbl per day change in heavy oil production.

- $0.7 million per 100 bbl per day change in NGLs production.

- $0.6 million per $0.01 change in the United States dollar to Canadian dollar exchange rate.

Capital Expenditures, Acquisitions and Divestitures

Daylight invested $59.4 million on its capital expenditure program during Q1 2009 compared to $38.8 million in Q4 2008 and $43.6 million in Q1 2008. The capital expenditure program has provided significant additions of new production volumes and Daylight anticipates fiscal 2009 production volumes to average 22,500 to 23,500 boe per day with the investment of approximately $125 to $140 million prior to the additional production related to the acquisition of a private oil and gas company. Daylight will update production guidance upon closing of the acquisition. In 2008, additional production was added through the acquisition of Athlone, and the West Central and Elmworth property acquisitions, net of the disposition of the Sturgeon Lake property.



----------------------------------------------------------------------------
(000s) Q1 Q4 Q1
2009 2008 2008
----------------------------------------------------------------------------
Land and acquisitions $ 2,525 $ 730 $ 3,331
Geological and geophysical 2,866 2,282 1,683
Drill, complete and recomplete 46,747 24,945 23,668
Equipping and facilities 7,275 10,809 14,948
----------------------------------------------------------------------------
Capital expenditures $ 59,413 $ 38,766 $ 43,630
Cash property acquisitions - 66,571 -
----------------------------------------------------------------------------
Net cash capital additions $ 59,413 $ 105,337 $ 43,630
Non-cash property acquisition - 26,887 -
----------------------------------------------------------------------------
Total net additions $ 59,413 $ 132,224 $ 43,630
----------------------------------------------------------------------------
----------------------------------------------------------------------------


In Q1 2009, Daylight drilled a total of 20 gross (6.1 net) wells with 100% success. This program provided production and reserve additions within the following core areas:

- Peace River Arch Properties include Cecil, Elmworth, and Sinclair. In Q1 2009, Daylight drilled 7 gross (3.3 net) natural gas wells.

- West Central properties include Pine Creek, Kaybob, Pembina, Oldman and Windfall. In Q1 2009, Daylight drilled 5 gross (1.7 net) natural gas wells.

- Eastern and Southern properties include Wildmere, Sylvan Lake, Chigwell, Bon Accord and Chipman. In Q1 2009, Daylight drilled 6 gross (0.8 net) natural gas wells and 2 gross (0.3 net) light oil wells.

On April 27, 2009 Daylight announced that it had entered into an agreement (the "Agreement") to acquire a private oil and gas company ("PrivateCo") by way of plan of arrangement. Pursuant to the Agreement, which is subject to stock exchange, court and regulatory approval and approval of the shareholders of PrivateCo, Daylight will acquire all of the issued and outstanding shares of PrivateCo by issuing 7.25 million Daylight units and paying $32 million cash. Total consideration for the transaction is approximately $109 million including the assumption of $25 million in net debt. In certain circumstances, a non-completion fee of $4 million may be payable by one party to the other entity.

On December 1, 2008, Daylight acquired certain petroleum and natural gas assets in the Elmworth area for $64.6 million. This acquisition included an allocation of $12.0 million to undeveloped land and seismic and was effective December 1, 2008. Daylight recorded $0.1 million in associated asset retirement obligations.

On October 31, 2008, Daylight acquired from MOX certain petroleum and natural gas assets in the West Central area and entered into a farmin arrangement on over 40 gross sections of land in the Elmworth and Peace River Arch areas in exchange for 3.75 million Daylight units and $2.0 million cash. Based on the exchange amount of $7.17 per unit, total consideration for the petroleum and natural gas assets was $28.9 million. The effective date of the purchase was October 1, 2008 and results from operations are included with those of the Trust commencing October 31, 2008. Results from operations and capital expenditures incurred from the effective date of October 1, 2008 to the closing date of October 31, 2008 have been recorded as an adjustment to the purchase equation. (See the "Related Party Transactions" section of this MD&A.) Daylight recorded $0.9 million in associated asset retirement obligations.

On September 30, 2008, Daylight disposed of its working interests in the Sturgeon Lake petroleum and natural gas property to a third party for cash proceeds of $87.7 million and removed $3.3 million of associated asset retirement obligations.

On September 17, 2008, Daylight acquired all of the issued and outstanding shares of Athlone for cash consideration of $0.85 per share. Total consideration for the transaction was $36.4 million including the assumption of $3.0 million in bank debt and a $3.8 million working capital deficiency.

On May 26, 2008, Daylight and Cadence Energy Inc. ("Cadence") announced that they had entered into an agreement whereby Daylight would acquire all of the issued and outstanding common shares of Cadence, pursuant to a Plan of Arrangement. On July 20, 2008, Daylight and Cadence terminated the arrangement agreement, due to another offer. As a result, Cadence paid Daylight a $9.0 million termination fee which was received on July 21, 2008. This one-time fee, net of transaction costs of $1.2 million, was reported as other income during the third quarter of 2008.



Investments
----------------------------------------------------------------------------
March 31, 2009 December 31, 2008
Number of Equity or Equity or
Symbol Shares Fair Value Fair Value
----------------------------------------------------------------------------
Bengal Energy Ltd. BNG 4,260,000 $ 1,363 $ 1,363
Trafalgar Energy Ltd. TFL 740,240 429 385
Pegasus Oil & Gas Inc. POG.A 2,440,000 390 537
----------------------------------------------------------------------------
Total $ 2,182 $ 2,285
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Daylight owns approximately 23% of the basic issued and outstanding common shares of Bengal Energy Ltd. ("Bengal"), a Calgary-based junior exploration company actively pursuing opportunities in Australia and India. Bengal is a public company trading on the Toronto Stock Exchange under the symbol BNG. This investment is composed of 4,260,000 common shares and Daylight accounts for this investment using the equity method.

On March 31, 2009, Bengal common shares closed at $0.28 per share. As at March 31, 2009, the market value of this investment was approximately $1.2 million (December 31, 2008 - $1.4 million). At December 31, 2008, the investment in Bengal was written down to its market value. For the three months ended March 31, 2009, the equity loss in Bengal was $nil (2008 - $0.4 million).

Daylight owns 740,240 common shares of Trafalgar Energy Ltd. ("Trafalgar"), which is approximately 7% of the issued and outstanding common shares of Trafalgar at March 31, 2009. The Trust accounts for its investment in Trafalgar at fair value based on the quoted market price. Trafalgar is a public company trading on the Toronto Stock Exchange under the symbol TFL. On March 31, 2009 the Trafalgar common shares closed at $0.58 per share. As at March 31, 2009, the market value of this investment was approximately $0.4 million (December 31, 2008 - $0.4 million).

Daylight also owns 2,440,000 Class A common shares of Pegasus Oil & Gas Inc. ("Pegasus"), which is approximately 6% of the issued and outstanding Class A common shares outstanding at March 31, 2009. The Trust accounts for its investment in Pegasus at fair value based on the quoted market price. Pegasus is a public company trading on the TSX Venture Exchange under the symbols POG.A and POG.B. On March 31, 2009, the class A shares closed at $0.16 per share. As at March 31, 2009, the market value of this investment was approximately $0.4 million (December 31, 2008 - $0.5 million).

Daylight continues to consider its investments in Bengal, Trafalgar and Pegasus as available for disposition.

Distributions

During Q1 2009, Daylight declared three monthly cash distributions totalling $21.7 million ($0.24 per trust unit) with a resulting payout ratio of 48%. During Q4 2008, Daylight declared three monthly cash distributions totalling $35.2 million ($0.39 per trust unit) with a resulting payout ratio of 70%. During Q1 2008, Daylight declared three cash distributions totalling $23.3 million ($0.30 per trust unit) with a resulting payout ratio of 40%.

Daylight's management and the Board of Directors continually monitor the distribution level in relation to forecasted funds from operations, debt levels and capital expenditure programs. Commodity prices and production volumes are critical variables in determining funds from operations and changes in these two items have a material impact on funds from operations and Daylight's ability to fund distributions. Distributions beyond the periods declared are not guaranteed to occur in the future.

Daylight targets to substantially finance its capital expenditures and cash distributions with funds from operations over the longer term. To the extent that capital expenditures are not fully financed by funds from operations, Daylight may draw upon its available credit facilities or issue new trust units or convertible debentures.

As discussed in the non-GAAP measures section of this MD&A, Daylight utilizes the non-GAAP term "funds from operations" to evaluate operating performance and assess leverage. Daylight considers this term to be an important measure in assessing its ability to generate the funds necessary to pay distributions, repay debt and finance capital expenditures. Funds from operations is also utilized in the calculation of "payout ratio" which is also a non-GAAP measure utilized by Daylight to evaluate financial flexibility and the capacity to fund distributions. National Policy 41-201 requires certain disclosures comparing distributions to cash provided by operating activities which is a GAAP measure. A reconciliation of cash provided by operating activities to funds from operations is included in the non-GAAP measures section of this MD&A. The disclosures required by National Policy 41-201 are contained in the following table and paragraphs of this section of the MD&A.



----------------------------------------------------------------------------
(000s) Q1 Q4 Q1
2009 2008 2008
----------------------------------------------------------------------------
Cash distributions declared per unit $ 0.24 $ 0.39 $ 0.30
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash provided by operating activities $ 47,429 $ 47,416 $ 43,516
Cash distributions declared $ 21,657 $ 35,193 $ 23,333
----------------------------------------------------------------------------
Excess of cash provided by operating
activities over cash distributions declared: $ 25,772 $ 12,223 $ 20,183
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income $ 6,071 $ 44,424 $ 3,941
Cash distributions declared $ 21,657 $ 35,193 $ 23,333
----------------------------------------------------------------------------
Excess (shortfall) of net income over cash
distributions declared: $ (15,586) $ 9,231 $ (19,392)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Cash provided by operating activities of $47.4 million for Q1 2009 exceeded Daylight's cash distributions declared of $21.7 million by $25.8 million. Cash provided by operating activities of $47.4 million for Q4 2008 exceeded cash distributions declared of $35.2 million by $12.2 million. Cash provided by operating activities of $43.5 million for Q1 2008 exceeded cash distributions declared of $23.3 million by $20.2 million in the period.

For Q1 2009 and Q1 2008, the cash distributions declared exceeded the net income of $6.1 million and $3.9 million, respectively, by $15.6 million and $19.4 million respectively. For Q4 2008, net income of $44.4 million exceeded the cash distributions declared by $9.2 million.

Cash distributions declared often exceed net income but do not typically exceed cash provided by operating activities and this relationship is expected to continue for future periods. Daylight has often declared cash distributions in excess of net income since net income includes several non-cash charges including depletion, depreciation and accretion, unit-based compensation, unrealized gain on financial instruments and future taxes, which do not impact the funds available to pay distributions declared. The depletion, depreciation and accretion charge does not necessarily represent the cost of maintaining and replacing the volume of reserves produced in the period. In those periods where cash distributions exceed net income, a portion of the distribution declared may represent an economic return of capital for unitholders and the distributions declared may be subject to increases or decreases in future periods depending on future circumstances.

Daylight has a Premium Distribution Reinvestment and Optional Trust Unit Purchase Plan ("Premium DRIP™") for eligible unitholders. On distribution payment dates eligible Premium DRIP™ unitholders may receive, in lieu of the cash distribution that unitholders are otherwise entitled to receive in respect of their units, a cash payment equal to 102% of such amount.

Unitholders may also reinvest their cash distributions in additional trust units at a price that is 95% of the average market price for the Pricing Period. The Pricing Period refers to the period beginning on the later of the 21st business day preceding the distribution payment date and the second business day following the record date applicable to that distribution payment date, and ending on the second business day preceding the distribution payment date. Eligible Premium DRIP™ unitholders may also make optional cash payments on this date to purchase additional trust units at a price that is equal to the average market price for the Pricing Period.

Daylight can prorate or suspend requests for the receipt of amounts under the Premium DRIP™. Daylight has not issued any trust units under the Premium DRIP™ program since August 2007 when Daylight suspended this program.



Liquidity and Capital Resources

----------------------------------------------------------------------------
(000s) March 31, December 31, March 31,
2009 2008 2008
----------------------------------------------------------------------------
Bank debt $ 238,359 $ 219,853 $ 268,410
Working capital deficiency(1) 60,981 42,275 29,908
----------------------------------------------------------------------------
299,340 262,128 298,318
Market value of investments (2,013) (2,285) (15,172)
----------------------------------------------------------------------------
297,327 259,843 283,146
Convertible debentures 115,836 115,201 120,170
Unitholders' equity $ 574,621 $ 588,932 $ 423,952
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Excludes unrealized gain (loss) on derivative contracts and future
income tax liability.


As a result of the global economic downturn, there remains uncertainty in capital markets. Despite this uncertainty and decreased commodity prices, the Trust continues to have access to debt and equity markets. The Trust continually monitors its financing alternatives and expects to substantially finance its cash capital expenditures program and distributions from internally generated funds from operations over the longer term.

At March 31, 2009, Daylight had $238 million outstanding on its credit facilities which provide up to $350 million available under a revolving term credit facility with a syndicate of banks and are subject to semi-annual review by the banking syndicate. The working capital deficiency does not affect the amount available under the credit facility. Daylight's banking syndicate reviewed and unanimously confirmed the $350 million revolving term credit facility on April 6, 2009. The next scheduled review date is October 31, 2009. The available lending limits of the facility are based on the syndicate's interpretation of the Trust's reserves and future commodity prices. There can be no assurance that the amount of the available facility will not decrease at the next scheduled review on or before October 31, 2009.

On April 15, 2009, Daylight announced that it had reached an agreement with a syndicate of underwriters ("Underwriters"), pursuant to which the Trust will issue on a "bought-deal" basis, subject to regulatory approval, 21,430,000 trust units at a price of $7.00 per trust unit for gross proceeds of $150 million (the "Offering"). Under the Offering, the Trust granted the Underwriters an over-allotment option to purchase up to an additional 3,200,000 trust units at the same offering price for total gross proceeds of $172 million. The Underwriters exercised the over-allotment option in full and as such, the Trust will receive $172 million at close on May 7, 2009.

Net proceeds of the Offering will be used by the Trust to reduce outstanding borrowings under Daylight's credit facilities, fund future growth initiatives and for general corporate purposes. The Offering is subject to normal regulatory approvals, including approval of the TSX.

On December 19, 2008, Daylight issued $75 million principal amount of 10% Convertible Unsecured Subordinated Debentures, Series C for net proceeds of $71.7 million. The Series C Debentures pay interest semi-annually on December 31 and June 30, commencing with the initial interest payment on June 30, 2009 and have a maturity date of December 31, 2013. The Series C Debentures are convertible at the option of the holder to trust units at a conversion price of $9.60 per trust unit. The Trust has the option to redeem the Series C Debentures at a price of $1,050 per Series C Debenture after December 31, 2011 and on or before December 31, 2012 and at a price of $1,025 per Series C Debenture after December 31, 2012 and before the maturity date of December 31, 2013.

The market value of Daylight's investments is based on the closing trading value of the related securities at the end of the periods and Daylight's ability to realize this value is subject to changes in the trading value of these securities. Daylight's working capital deficiency, excluding bank debt, unrealized gain on derivative contracts and future income tax liability, at March 31, 2009 was $61.0 million.

Daylight targets funding distributions and capital expenditures from internally generated funds from operations over the longer term. As such, management anticipates that Daylight will continue to have adequate liquidity to fund future working capital and forecasted capital expenditures during 2009 through funds from operations and/or debt and equity as required. Funds from operations used to finance these expenditures may reduce the amount of funding available to provide cash distributions to unitholders. Major acquisitions will require the issuance of new equity and/or convertible debentures.

On July 22, 2008, one of Daylight's minor oil marketing and natural gas processing counterparties, SemGroup L.P. ("SemCanada") entered creditor protection. As of that date, Daylight had a receivable from certain subsidiaries of SemCanada of approximately $1.8 million. As of December 31, 2008, Daylight considered collection of this receivable at risk and as such, had provided an allowance for doubtful accounts of $1.8 million. Daylight has no history of losses associated with its marketing counter parties and believes this to be non-recurring in nature. Daylight's credit risk program is considered appropriate and it has been concluded that these events could not have been foreseen by a standard credit risk program.

Trust Unit Information

Daylight's trust units trade on the Toronto Stock Exchange under the symbol "DAY.UN" and Daylight is a constituent of the S&P/TSX Income Trust Index and S&P/TSX Composite Index. A summary of Daylight's trading history on the TSX follows.



----------------------------------------------------------------------------
(per unit) Q1 Q4 Q1
2009 2008 2008
----------------------------------------------------------------------------
High $ 9.00 $ 10.24 $ 9.22
Low $ 5.12 $ 6.00 $ 6.81
Close $ 6.81 $ 7.81 $ 8.97
Average daily volume 551,624 669,264 443,188
----------------------------------------------------------------------------
----------------------------------------------------------------------------


On July 28, 2008, Daylight filed notice with the TSX to make a normal course issuer bid (the "Bid") to purchase outstanding trust units on the open market through the facilities of the TSX. The TSX has authorized Daylight to purchase up to 8,206,753 trust units, being 10% of the public float, from July 30, 2008 through July 29, 2009 or such earlier time as the Bid is completed or terminated at the option of the Trust. The Trust will pay for any trust units acquired under the Bid at the prevailing market price on the TSX at the time of the purchase. The trust units acquired under the Bid will be cancelled. For the three months ended March 31, 2009, no trust units were purchased and cancelled. For the year ended December 31, 2008, Daylight purchased and cancelled 386,200 units at a cost of $3.9 million. The average carrying value of the units repurchased of $5.2 million was charged to unitholders' capital with the excess of $1.3 million charged to contributed surplus.



As at March 31, 2009, Daylight had the following trust units and trust unit
equivalents outstanding:
----------------------------------------------------------------------------
Number
----------------------------------------------------------------------------
Trust units 90,239,243
Convertible debentures Series A ($3,576,000 face value) 253,997
Convertible debentures Series B ($53,737,000 face value) 6,248,488
Convertible debentures Series C ($75,000,000 face value) 7,812,500
Restricted Trust Unit Awards (1,059,364) 1,339,675
Performance Trust Unit Awards (569,084) 622,674
----------------------------------------------------------------------------
Total Diluted 106,516,577
----------------------------------------------------------------------------
----------------------------------------------------------------------------

As at May 6, 2009, Daylight has the following trust units and trust unit
equivalents outstanding:

----------------------------------------------------------------------------
Number
----------------------------------------------------------------------------
Trust units 90,554,336
Convertible debentures Series A ($3,576,000 face value) 253,997
Convertible debentures Series B ($53,737,000 face value) 6,248,488
Convertible debentures Series C ($75,000,000 face value) 7,812,500
Restricted Trust Unit Awards (873,032) 1,109,003
Performance Trust Unit Awards (543,666) 594,834
----------------------------------------------------------------------------
Total Diluted 106,573,158
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Commitments

The following is a summary of Daylight's contractual obligations and
commitments as at March 31, 2009:

----------------------------------------------------------------------------
2009 2010 2011 2012 2013 Thereafter
----------------------------------------------------------------------------
Operating leases $ 5,064 $3,685 $ 2,432 $ 1,526 $ 1,525 $ 4,956
Natural gas transportation 1,785 2,236 1,656 422 - -
Convertible debentures
(face value) 3,576 - - 53,737 75,000 -
Bank debt - - 238,359 - - -
----------------------------------------------------------------------------
$10,425 $5,921 $242,447 $55,685 $76,525 $ 4,956
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Daylight enters into multiple contractual obligations as part of conducting day-to-day business. Material contractual obligations include bank debt, leases for office space, a drilling rig contract and commitments for natural gas transportation.



Quarterly Financial Information
----------------------------------------------------------------------------
(000s) Q1 Q4 Q3 Q2
2009 2008 2008 2008
----------------------------------------------------------------------------
Funds from operations $44,895 $ 50,075 $ 78,646 $ 77,032
Per Unit
Basic $ 0.50 $ 0.56 $ 0.91 $ 0.95
Diluted $ 0.45 $ 0.52 $ 0.84 $ 0.85
----------------------------------------------------------------------------
Cash provided by operating activities $47,429 $ 47,416 $ 97,799 $ 71,028
----------------------------------------------------------------------------
Net income $ 6,071 $ 44,424 $ 69,692 $ 42,462
----------------------------------------------------------------------------
Per Unit
Basic $ 0.07 $ 0.50 $ 0.81 $ 0.53
Diluted $ 0.07 $ 0.48 $ 0.76 $ 0.48
----------------------------------------------------------------------------
Petroleum and natural gas revenues $71,893 $ 91,311 $ 145,269 $ 151,171
----------------------------------------------------------------------------
Average daily production combined
(boe/d) 22,810 21,863 21,782 20,717
----------------------------------------------------------------------------
----------------------------------------------------------------------------


----------------------------------------------------------------------------
(000s) Q1 Q4 Q3 Q2
2008 2007 2007 2007
----------------------------------------------------------------------------
Funds from operations $ 58,667 $ 47,479 $ 40,343 $ 35,274
----------------------------------------------------------------------------
Per Unit
Basic $ 0.75 $ 0.61 $ 0.52 $ 0.46
Diluted $ 0.66 $ 0.54 $ 0.52 $ 0.46
----------------------------------------------------------------------------
Cash provided by operating
activities $ 43,516 $ 44,824 $ 38,850 $ 37,211
----------------------------------------------------------------------------
Net income (loss) $ 3,941 $(127,381) $ 7,131 $ 18,682
----------------------------------------------------------------------------
Per Unit
Basic $ 0.05 $ (1.64) $ 0.09 $ 0.24
Diluted $ 0.05 $ (1.64) $ 0.09 $ 0.24
----------------------------------------------------------------------------
Petroleum and natural gas revenues $ 113,986 $ 99,718 $ 82,557 $ 92,699
----------------------------------------------------------------------------
Average daily production combined
(boe/d) 19,804 20,583 19,600 20,325
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Funds from operations and cash provided by operating activities decreased during Q1 2009 and Q4 2008 versus Q3 2008 due to falling commodity prices. Funds from operations remained relatively flat during Q3 2008 versus Q2 2008 and for the period Q2 2007 to Q3 2007. During Q4 2007 and the first half of 2008, funds from operations showed significant increases due to rising commodity prices for crude oil and natural gas resulting in significant increases in revenue. Fluctuating commodity prices resulted in realized gains on commodity contracts in 2007 and losses in 2008. Two transactions affected funds from operations in Q3 2008. Q3 2008 funds from operations was positively impacted by a termination fee of $9.0 million, net of transaction costs of $1.2 million, paid to Daylight by Cadence upon termination of their arrangement agreement. A provision for non-recoverable accounts receivable due from certain subsidiaries of SemCanada, for $1.8 million, negatively impacted Q3 2008 funds from operations. Cash provided by operating activities remained relatively flat for the period Q2 2007 to Q1 2008.

Net income has been affected by fluctuations in commodity prices and realized gains and losses on derivative contracts as well as the two transactions in Q3 2008 as discussed above. Net income has been significantly impacted by non-cash items such as future taxes, unrealized hedging gains and losses, and a write down to goodwill. In Q4 2007, Daylight recorded a write down of $137.9 million to goodwill which significantly affected net income for the period. There has been no impairment to the value of Daylight's petroleum and natural gas assets and no write down to petroleum and natural gas assets has been recorded in any period.

Control Environment

Disclosure Controls and Procedures

Daylight's Chief Executive Officer and Chief Financial Officer have designed or caused to be designed under their supervision, disclosure controls and procedures that ensure that information required to be disclosed by Daylight is accumulated and communicated to Daylight's management as appropriate to allow timely decisions regarding required disclosure. Daylight's Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by the interim filing, that Daylight's disclosure controls and procedures for the three months ended March 31, 2009 are designed to provide reasonable assurance that material information related to Daylight, including its consolidated subsidiaries, is made known to them by others within those entities.

Internal Control Over Financial Reporting

Daylight's Chief Executive Officer and Chief Financial Officer have designed or caused to be designed under their supervision, internal controls over financial reporting related to the Trust, including its consolidated subsidiaries, to provide reasonable assurance regarding the reliability of the Trust's financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP. As at March 31, 2009, Daylight's Chief Executive Officer and Chief Financial Officer have evaluated or caused to be evaluated under their supervision, the design of the Trust's internal controls over financial reporting and have concluded that these controls are designed effectively.

Daylight's Chief Executive Officer and Chief Financial Officer are required to disclose herein any change in the Trust's internal control over financial reporting that occurred during the Trust's most recent interim period that has materially affected, or is reasonably likely to have materially affected, the Trust's control over financial reporting. No changes in the Trust's internal controls over financial reporting were identified during the three months ended March 31, 2009 that have materially affected, or are reasonably likely to materially affect, the Trust's internal controls over financial reporting.

It should be noted that while Daylight's Chief Executive Officer and Chief Financial Officer believe that the Trust's disclosure controls and procedures and internal controls over financial reporting provide a reasonable level of assurance that they are effective, they do not expect that the disclosure controls and procedures or internal controls over financial reporting will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

Critical Accounting Estimates

The significant accounting policies used by Daylight are disclosed in note 1 to the Consolidated Financial Statements for the years ended December 31, 2008 and 2007. Certain accounting policies require that management make appropriate decisions with respect to the formulation of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Management reviews its estimates on a regular basis. The emergence of new information and changed circumstances may result in actual results or changes to estimated amounts that differ materially from current estimates.

Future Accounting Changes

International Financial Reporting Standards ("IFRS")

In February 2008, the CICA Accounting Standards Board ("AcSB") confirmed the changeover to IFRS from Canadian GAAP will be required for publicly accountable enterprises for interim and annual financial statements effective for fiscal years beginning on or after January 1, 2011, including comparatives for 2010.

In response, the Trust has developed a changeover plan and established a timeline for the execution and completion of the conversion project. During the three months ended March 31, 2009, IFRS in-depth reviews have been concentrated on cash-generating units and unit-based compensation. The Trust continues to monitor standards development as issued by the IASB and the AcSB as well as regulatory developments as issued by the Canadian Securities Administrators, which may affect the timing, nature or disclosure of its adoption of IFRS.

Risks and Uncertainties

Daylight is subject to multiple business risks that are similar to other entities involved in the conventional energy trust sector. Daylight's financial position, results of operations, funds from operations and distributions to unitholders are directly impacted by the following factors:

For a detailed discussion of the Risks and Uncertainties, refer to the Trust's Revised Annual Information Form, filed on SEDAR at www.sedar.com.



DAYLIGHT RESOURCES TRUST

Quarterly Information

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Financial
(in thousands of dollars, 2009 2008
except unit, per unit ------------------------------------------------
and boe data) Q1 Q4 Q3 Q2 Q1
----------------------------------------------------------------------------
Petroleum and natural
gas revenues $ 71,893 $ 91,311 $ 145,269 $ 151,171 $ 113,986
Royalties (14,111) (18,814) (28,149) (29,568) (21,733)
Realized gain (loss)
on derivative contracts 25,285 12,230 (9,237) (9,507) -
Operating expenses (24,441) (24,038) (23,943) (22,587) (21,769)
Transportation expenses (2,310) (2,423) (2,132) (1,926) (1,721)
----------------------------------------------------------------------------
Operating netback 56,316 58,266 81,808 87,583 68,763
G&A - cash charge (6,885) (4,483) (4,542) (4,175) (3,679)
Cash financial charges (4,536) (3,708) (4,626) (6,376) (6,417)
Provision for non-
recoverable accounts
receivable - - (1,800) - -
Other income (1) - - 7,806 - -
----------------------------------------------------------------------------
Funds from operations 44,895 50,075 78,646 77,032 58,667
Per unit - Basic 0.50 0.56 0.91 0.95 0.75
- Diluted 0.45 0.52 0.84 0.85 0.66
----------------------------------------------------------------------------
Cash provided by
operating activities 47,429 47,416 97,799 71,028 43,516
----------------------------------------------------------------------------
Net income (loss) 6,071 44,424 69,692 42,462 3,941
Per unit - Basic 0.07 0.50 0.81 0.53 0.05
- Diluted 0.07 0.48 0.76 0.48 0.05
----------------------------------------------------------------------------
Cash distributions
declared 21,657 35,193 33,684 24,807 23,333
Per unit 0.24 0.39 0.39 0.30 0.30
Payout ratio 48% 70% 43% 32% 40%
----------------------------------------------------------------------------
Capital expenditures 59,413 38,766 45,657 37,866 43,630
Cash property acquisitions - 66,571 - - -
Cash property divestitures - - (87,695) - -
Non-cash property
acquisitions - 26,887 - - -
----------------------------------------------------------------------------
Corporate acquisitions - - 36,433 - -
----------------------------------------------------------------------------
Market value of
investments 2,013 2,285 9,987 18,554 15,172
----------------------------------------------------------------------------
Bank debt 238,359 219,853 199,282 274,313 268,410
Working capital
deficiency(2) 60,981 42,275 37,200 9,740 29,908
----------------------------------------------------------------------------
Convertible debentures 115,836 115,201 54,180 62,762 120,170
----------------------------------------------------------------------------
Total assets 1,077,667 1,058,195 915,364 970,810 949,143
----------------------------------------------------------------------------
Units outstanding (000s)
Basic 90,239 90,239 86,299 85,481 77,914
Diluted 106,517 106,050 94,295 94,553 94,096
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operations
Average daily production
Natural gas (mcf/d) 91,668 82,572 81,798 75,041 67,691
Light oil (bbls/d) 3,935 4,086 4,864 4,899 5,174
Heavy oil (bbls/d) 2,117 2,798 2,179 2,257 2,181
NGLs (bbls/d) 1,480 1,217 1,106 1,054 1,167
----------------------------------------------------------------------------
Oil & NGLs (bbls/d) 7,532 8,101 8,149 8,210 8,522
----------------------------------------------------------------------------
Combined (boe/d) 22,810 21,863 21,782 20,717 19,804
----------------------------------------------------------------------------
Average prices received
Natural gas ($/mcf) $ 5.26 $ 7.06 $ 8.52 $ 10.30 $ 7.92
Light oil ($/bbl) 46.17 55.28 116.11 120.93 91.40
Heavy oil ($/bbl) 37.57 45.20 99.43 96.07 71.54
NGLs ($/bbl) 38.81 43.27 89.43 84.76 74.91
----------------------------------------------------------------------------
Oil & NGLs ($/bbl) $ 42.31 $ 50.00 $ 108.03 $ 109.46 $ 84.06
----------------------------------------------------------------------------
Combined ($/boe) $ 35.02 $ 45.40 $ 72.50 $ 80.19 $ 63.25
----------------------------------------------------------------------------
Wells drilled - gross
(net) 20 (6.1) 10 (3.2) 15 (7.0) 3 (2.2) 22 (8.9)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


----------------------------------------------------------------------------
----------------------------------------------------------------------------
Financial
(in thousands of dollars, 2007
except unit, per unit ---------------------------------
and boe data) Q4 Q3 Q2
----------------------------------------------------------------------------
Petroleum and natural gas revenues $ 99,718 $ 82,557 $ 92,699
Royalties (18,853) (14,454) (18,223)
Realized gain (loss) on derivative
contracts 2,145 5,118 (320)
Operating expenses (23,072) (21,555) (27,268)
Transportation expenses (2,019) (1,920) (2,085)
----------------------------------------------------------------------------
Operating netback 57,919 49,746 44,803
G&A - cash charge (3,724) (3,552) (4,117)
Cash financial charges (6,716) (5,851) (5,412)
Provision for non-recoverable
accounts receivable - - -
Other income (1) - - -
----------------------------------------------------------------------------
Funds from operations 47,479 40,343 35,274
Per unit - Basic 0.61 0.52 0.46
- Diluted 0.54 0.52 0.46
----------------------------------------------------------------------------
Cash provided by operating activities 44,824 38,850 37,211
----------------------------------------------------------------------------
Net income (loss) (127,381) 7,131 18,682
Per unit - Basic (1.64) 0.09 0.24
- Diluted (1.64) 0.09 0.24
----------------------------------------------------------------------------
Cash distributions declared 23,296 27,006 34,475
Per unit 0.30 0.35 0.45
Payout ratio 49% 67% 98%
----------------------------------------------------------------------------
Capital expenditures 29,089 33,727 12,887
Cash property acquisitions - - -
Cash property divestitures - - -
Non-cash property acquisitions - - -
----------------------------------------------------------------------------
Corporate acquisitions - - -
----------------------------------------------------------------------------
Market value of investments 13,068 13,336 17,988
----------------------------------------------------------------------------
Bank debt 257,342 363,153 358,832
Working capital deficiency(2) 32,088 40,097 25,499
----------------------------------------------------------------------------
Convertible debentures 119,792 3,467 3,456
----------------------------------------------------------------------------
Total assets 922,344 1,065,025 1,072,055
----------------------------------------------------------------------------
Units outstanding (000s)
Basic 77,657 77,475 76,652
Diluted 93,850 78,983 78,133
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operations
Average daily production
Natural gas (mcf/d) 71,187 69,143 74,356
Light oil (bbls/d) 4,964 4,565 4,258
Heavy oil (bbls/d) 2,488 2,382 2,416
NGLs (bbls/d) 1,266 1,129 1,258
----------------------------------------------------------------------------
Oil & NGLs (bbls/d) 8,718 8,076 7,932
----------------------------------------------------------------------------
Combined (boe/d) 20,583 19,600 20,325
----------------------------------------------------------------------------
Average prices received
Natural gas ($/mcf) $ 6.45 $ 5.33 $ 7.24
Light oil ($/bbl) 81.84 73.87 67.09
Heavy oil ($/bbl) 53.50 51.97 46.05
NGLs ($/bbl) 64.99 59.90 53.42
----------------------------------------------------------------------------
Oil & NGLs ($/bbl) $ 71.31 $ 65.46 $ 58.51
----------------------------------------------------------------------------
Combined ($/boe) $ 52.66 $ 45.79 $ 50.12
----------------------------------------------------------------------------
Wells drilled - gross (net) 11 (7.8) 18 (9.9) 4 (3.6)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) Termination fee of $9.0 million relates to termination of arrangement
with Cadence Energy Inc., less transaction costs of $1.2 million.
(2) Excludes unrealized gain (loss) on derivative contracts and future
income taxes.


Quarterly Information

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Financial
(in thousands of dollars, 2007 2006
except unit, per unit ------------------------------------------------
and boe data) Q1 Q4 Q3 Q2 Q1
----------------------------------------------------------------------------
Petroleum and natural
gas revenues $ 91,982 $ 92,715 $ 69,877 $ 68,554 $ 66,187
Royalties (16,237) (17,444) (13,312) (14,040) (12,485)
Realized gain (loss)
on derivative
contracts 24 91 (133) - -
Operating expenses (21,971) (21,319) (15,901) (15,286) (14,848)
Transportation expenses (1,833) (1,871) (1,959) (1,354) (1,309)
----------------------------------------------------------------------------
Operating netback 51,965 52,172 38,572 37,874 37,545
G&A - cash charge (3,840) (4,326) (3,634) (2,625) (2,596)
Cash financial charges (5,292) (4,519) (2,695) (2,286) (1,699)
Cash taxes - (54) (1) 222 (225)
----------------------------------------------------------------------------
Funds from operations 42,833 43,273 32,242 33,185 33,025
Per unit - Basic 0.57 0.59 0.71 0.79 0.80
- Diluted 0.57 0.59 0.68 0.77 0.77
----------------------------------------------------------------------------
Cash provided by
operating activities 46,500 21,314 31,783 42,119 17,889
----------------------------------------------------------------------------
Net income (loss) 5,301 (283,511) (2,140) 15,735 12,093
Per unit - Basic 0.07 (3.88) (0.05) 0.38 0.29
- Diluted 0.07 (3.88) (0.05) 0.38 0.29
----------------------------------------------------------------------------
Cash distributions
declared 34,114 43,008 31,844 26,663 26,407
Per unit 0.45 0.59 0.62 0.63 0.63
Payout ratio 80% 99% n/a(1) 80% 80%
----------------------------------------------------------------------------
Capital expenditures 20,677 17,032 19,358 21,034 35,378
Cash property acquisition - 32,729 - - -
Non-cash property
divestitures - - (21,100) (6,628) -
----------------------------------------------------------------------------
Corporate acquisitions - - 527,691 - -
----------------------------------------------------------------------------
Market value of
investments 16,673 22,860 20,500 5,783 -
----------------------------------------------------------------------------
Bank debt 338,511 349,336 287,392 165,114 162,190
Working capital
deficiency(2) 29,649 22,624 50,318 28,931 17,048
----------------------------------------------------------------------------
Convertible debentures 3,444 3,515 3,510 3,973 6,996
----------------------------------------------------------------------------
Total assets 1,083,695 1,114,085 1,424,236 833,821 845,746
----------------------------------------------------------------------------
Units outstanding (000s)
Basic 76,542 74,322 71,863 42,209 41,861
Diluted 77,597 75,309 72,117 44,349 44,110
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operations
Average daily production
Natural gas (mcf/d) 78,556 80,991 57,926 59,452 56,012
Light oil (bbls/d) 4,310 4,455 3,172 2,855 2,575
Heavy oil (bbls/d) 2,504 2,796 2,760 2,579 2,701
NGLs (bbls/d) 1,449 1,449 756 740 677
----------------------------------------------------------------------------
Oil & NGLs (bbls/d) 8,263 8,700 6,688 6,174 5,953
----------------------------------------------------------------------------
Combined (boe/d) 21,356 22,199 16,342 16,083 15,288
----------------------------------------------------------------------------
Average prices received
Natural gas ($/mcf) $ 7.31 $ 6.75 $ 5.74 $ 6.18 $ 7.77
Light oil ($/bbl) 61.34 60.07 74.23 71.78 65.55
Heavy oil ($/bbl) 42.50 39.59 51.27 52.01 34.29
NGLs ($/bbl) 54.31 49.53 67.79 63.05 60.50
----------------------------------------------------------------------------
Oil & NGLs ($/bbl) $ 54.40 $ 51.73 $ 64.03 $ 62.48 $ 50.79
Combined ($/boe) $ 47.86 $ 45.40 $ 46.48 $ 46.84 $ 48.10
----------------------------------------------------------------------------
Wells drilled - gross
(net) 11 (6.0) 9 (1.8) 12 (9.2) 5 (1.0) 21 (15.6)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


----------------------------------------------------------------------------
----------------------------------------------------------------------------
Financial
(in thousands of dollars, 2005
except unit, per unit ---------------------------------
and boe data) Q4 Q3 Q2
----------------------------------------------------------------------------
Petroleum and natural gas revenues $ 85,615 $ 76,445 $ 60,529
Royalties (15,802) (13,242) (10,558)
Realized gain (loss) on derivative
contracts (99) (350) 59
Operating expenses (13,580) (12,981) (13,184)
Transportation expenses (1,657) (1,018) (950)
----------------------------------------------------------------------------
Operating netback 54,477 48,854 35,896
G&A - cash charge (3,545) (2,216) (2,108)
Cash financial charges (1,862) (2,756) (2,861)
Cash taxes (603) (170) (295)
----------------------------------------------------------------------------
Funds from operations 48,467 43,712 30,632
Per unit - Basic 1.33 1.37 1.02
- Diluted 1.26 1.23 0.88
----------------------------------------------------------------------------
Cash provided by operating activities 47,285 42,922 24,095
----------------------------------------------------------------------------
Net income (loss) 25,447 20,525 12,201
Per unit - Basic 0.70 0.68 0.41
- Diluted 0.69 0.63 0.40
----------------------------------------------------------------------------
Cash distributions declared 24,316 17,023 16,284
Per unit 0.63 0.54 0.54
Payout ratio 50% 39% 53%
----------------------------------------------------------------------------
Capital expenditures 20,215 23,851 14,086
Cash property acquisition - - -
Non-cash property divestitures (14,636) - -
----------------------------------------------------------------------------
Corporate acquisitions 116,509 - 61,000
----------------------------------------------------------------------------
Market value of investments - - -
----------------------------------------------------------------------------
Bank debt 123,455 124,185 131,755
Working capital deficiency(2) 26,575 15,346 9,878
----------------------------------------------------------------------------
Convertible debentures 9,219 22,117 72,919
----------------------------------------------------------------------------
Total assets 841,254 689,297 676,212
----------------------------------------------------------------------------
Units outstanding (000s)
Basic 40,806 33,767 30,113
Diluted 43,854 37,501 37,334
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operations
Average daily production
Natural gas (mcf/d) 54,438 54,096 57,890
Light oil (bbls/d) 2,368 2,527 2,292
Heavy oil (bbls/d) 2,460 2,096 1,937
NGLs (bbls/d) 814 785 771
----------------------------------------------------------------------------
Oil & NGLs (bbls/d) 5,642 5,408 5,000
----------------------------------------------------------------------------
Combined (boe/d) 14,715 14,424 14,648
----------------------------------------------------------------------------
Average prices received
Natural gas ($/mcf) $ 11.91 $ 9.26 $ 7.51
Light oil ($/bbl) 63.40 68.98 62.80
Heavy oil ($/bbl) 33.06 51.94 23.49
NGLs ($/bbl) 58.79 56.56 52.71
----------------------------------------------------------------------------
Oil & NGLs ($/bbl) $ 49.52 $ 60.57 $ 46.02
Combined ($/boe) $ 63.24 $ 57.61 $ 45.41
----------------------------------------------------------------------------
Wells drilled - gross (net) 34 (21.7) 15 (6.9) 5 (3.4)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) On a proforma basis, if the Sequoia acquisition had been completed on
September 1, 2006, the payout ratio would have been 88% for Q3 2006.
(2) Excludes unrealized gain (loss) on derivative contracts and future
income tax liability.


Annual Information
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Financial
(in thousands of dollars,
except unit, per
unit and boe data) 2008 2007 2006 2005 2004
----------------------------------------------------------------------------
Petroleum and natural
gas revenues $ 501,737 $ 366,956 $ 297,333 $ 276,573 $ 17,377
Royalties (98,264) (67,767) (57,281) (49,977) (3,674)
Realized gain (loss)
on derivative contracts (6,514) 6,967 (42) (390) -
Operating expenses (92,337) (93,866) (67,354) (52,073) (4,335)
Transportation expenses (8,202) (7,857) (6,493) (4,055) (153)
----------------------------------------------------------------------------
Operating netback 296,420 204,433 166,163 170,078 9,215
Interest income - - - - 726
G&A - cash charge (16,879) (15,233) (13,181) (9,856) (987)
Cash financial charges (21,127) (23,271) (11,199) (10,063) (1,677)
Provision for
non-recoverable accounts
receivable (1,800) - - - -
Other income (1) 7,806 - - - -
Cash taxes - - (58) (1,277) (80)
----------------------------------------------------------------------------
Funds from operations 264,420 165,929 141,725 148,882 7,197
Per unit - Basic 3.17 2.16 2.80 4.59 0.36
- Diluted 2.89 2.10 2.71 4.20 0.35
----------------------------------------------------------------------------
Cash provided by operating
activities 259,759 167,385 113,105 133,219 9,392
----------------------------------------------------------------------------
Net income (loss) 160,519 (96,267) (257,823) 64,060 1,045
Per unit - Basic 1.92 (1.26) (5.09) 2.06 0.06
- Diluted 1.80 (1.26) (5.09) 1.99 0.06
----------------------------------------------------------------------------
Cash distributions
declared 117,017 118,891 127,922 72,585 9,777
Per unit 1.38 1.55 2.47 2.26 0.36
Payout ratio 44% 72% n/a(2) 49% 136%
----------------------------------------------------------------------------
Capital expenditures 165,919 96,380 92,802 72,539 5,057
Cash property
acquisitions 66,571 - 32,729 - -
Cash property
divestitures (87,695) - - - -
Non-cash property
acquisitions 26,887 - - - -
Non-cash property
divestitures - - (27,728) (14,636) (33,456)
----------------------------------------------------------------------------
Corporate acquisitions 36,433 - 527,691 177,509 587,164
----------------------------------------------------------------------------
Market value of
investments 2,285 13,068 22,860 - -
----------------------------------------------------------------------------
Bank debt 219,853 257,342 349,336 123,455 89,220
Working capital
deficiency(3) 42,275 32,088 22,624 26,575 20,820
----------------------------------------------------------------------------
Convertible debentures 115,201 119,792 3,515 9,219 77,718
----------------------------------------------------------------------------
Total assets 1,058,195 922,344 1,114,085 841,254 615,486
----------------------------------------------------------------------------
Units outstanding (000s)
Basic 90,239 77,657 74,322 40,806 27,119
Diluted 106,050 93,850 75,309 43,854 34,409
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operations
Average daily production
Natural gas (mcf/d) 76,805 73,279 63,648 56,306 58,264
Light oil (bbls/d) 4,754 4,526 3,269 2,476 2,671
Heavy oil (bbls/d) 2,354 2,447 2,709 1,631 -
NGLs (bbls/d) 1,136 1,275 908 815 846
----------------------------------------------------------------------------
Oil & NGLs (bbls/d) 8,244 8,248 6,886 4,922 3,517
----------------------------------------------------------------------------
Combined (boe/d) 21,045 20,461 17,494 14,307 13,228
----------------------------------------------------------------------------
Average prices received
Natural gas ($/mcf) $ 8.43 $ 6.61 $ 6.61 $ 8.84 $ 6.89
Light oil ($/bbl) 97.52 71.54 67.15 62.83 44.29
Heavy oil ($/bbl) 76.01 48.52 44.24 36.35 -
NGLs ($/bbl) 72.22 57.99 58.09 53.47 45.34
----------------------------------------------------------------------------
Oil & NGLs ($/bbl) $ 87.89 $ 62.62 $ 56.94 $ 52.51 $ 44.54
----------------------------------------------------------------------------
Combined ($/boe) $ 65.14 $ 49.14 $ 46.57 $ 52.97 $ 42.37
----------------------------------------------------------------------------
Wells drilled - gross
(net) 50 (21.4) 44 (27.3) 47 (27.6) 71 (40.6) 4 (2.1)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) Termination fee of $9.0 million relates to termination of arrangement
with Cadence Energy Inc., less transaction costs of $1.2 million.
(2) On a proforma basis, if the Sequoia acquisition had been completed on
September 1, 2006, the payout ratio would have been 83% for 2006.
(3) Excludes unrealized gain (loss) on derivative contracts and future
income tax liability.

The 2004 financial results reflect the activities of Daylight from
October 21, 2004 to December 31, 2004. Active oil and gas operations
commenced subsequent to the Plan of Arrangement on November 30, 2004
and Operations information above applies to that one month period.


Consolidated Balance Sheets

(in thousands of dollars) (unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
March 31, December 31,
2009 2008
----------------------------------------------------------------------------

Assets

Current assets
Accounts receivable (note 10) $ 40,174 $ 45,502
Prepaid expenses and deposits 4,496 3,577
Unrealized gain on derivative contracts
(note 10) 73,372 71,535
----------------------------------------------------------------------------
118,042 120,614
Investments (note 2) 2,182 2,285
Property, plant and equipment (note 3) 941,422 923,465
Deferred financing charges (note 6) 73 100
Future income tax asset 15,948 11,731
----------------------------------------------------------------------------
$ 1,077,667 $ 1,058,195
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Liabilities

Current liabilities
Accounts payable and accrued liabilities $ 94,888 $ 76,090
Distributions payable 7,219 11,731
Future income tax liability 21,278 20,745
Current portion of convertible debentures
(note 5) 3,544 3,533
----------------------------------------------------------------------------
126,929 112,099
Bank debt (note 4) 238,359 219,853
Convertible debentures (note 5) 115,836 115,201
Asset retirement obligations (note 7) 21,922 22,110
----------------------------------------------------------------------------
503,046 469,263
----------------------------------------------------------------------------

Unitholders' Equity

Unitholders' capital (note 8) 1,181,868 1,181,868
Contributed surplus (note 8) 5,430 4,155
Equity component of convertible debentures
(note 5) 9,080 9,080
Deficit (621,757) (606,171)
----------------------------------------------------------------------------
574,621 588,932
----------------------------------------------------------------------------
$ 1,077,667 $ 1,058,195
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Commitments (note 12)

Subsequent events (note 13)

See accompanying notes to the consolidated financial statements.


Consolidated Statements of Income, Comprehensive Income and Deficit
Three months ended March 31,

(in thousands of dollars, except per unit amounts) (unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2009 2008
----------------------------------------------------------------------------

Revenues
Petroleum and natural gas $ 71,893 $ 113,986
Royalties (14,111) (21,733)
Gain (loss) on financial instruments (note 10) 27,019 (22,403)
----------------------------------------------------------------------------
84,801 69,850

Expenses
Operating 24,441 21,769
Transportation expenses 2,310 1,721
General and administrative 7,845 5,974
Financial charges (note 6) 5,224 6,898
Loss on equity investment (note 2) - 362
Depletion, depreciation and accretion 42,701 35,175
----------------------------------------------------------------------------
82,521 71,899
----------------------------------------------------------------------------

Income (loss) before taxes 2,280 (2,049)

Future tax reduction (3,791) (5,990)
----------------------------------------------------------------------------

Net income and comprehensive income 6,071 3,941
Deficit, beginning of period (606,171) (649,673)
Distributions (note 8) (21,657) (23,333)
----------------------------------------------------------------------------
Deficit, end of period $ (621,757) $ (669,065)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Net income per unit (note 8)
Basic $ 0.07 $ 0.05
Diluted $ 0.07 $ 0.05
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes to the consolidated financial statements.


Consolidated Statements of Cash Flows
Three months ended March 31,

(in thousands of dollars) (unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2009 2008
----------------------------------------------------------------------------

Cash provided by (used in):

Operating
Net income $ 6,071 $ 3,941
Items not affecting cash:
Depletion, depreciation and accretion 42,701 35,175
Future tax reduction (3,791) (5,990)
Non-cash financial charges (note 6) 688 481
Unit-based compensation 960 2,295
Unrealized (gain) loss on financial instruments (1,734) 22,403
Loss on equity investment - 362
Asset retirement expenditures (note 7) (1,011) (1,063)
Change in non-cash operating working capital
(note 9) 3,545 (14,088)
----------------------------------------------------------------------------
Cash provided by operating activities 47,429 43,516

Financing
Bank debt 18,506 11,068
Convertible debentures issued, net of
issue costs (note 5) (15) 73
Issue of trust units, net of issue costs (note 8) - 398
Cash distribution to unitholders (26,169) (23,308)
Repayments on obligation under capital lease - (101)
Change in non-cash financing working capital
(note 9) 3,051 2,717
----------------------------------------------------------------------------
Cash used in financing activities (4,627) (9,153)

Investing
Property, plant and equipment additions (59,413) (43,630)
Change in non-cash investing working capital
(note 9) 16,611 9,267
----------------------------------------------------------------------------
Cash used in investing activities (42,802) (34,363)

Change in cash - -
Cash, beginning of period - -
----------------------------------------------------------------------------
Cash, end of period $ - $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash is defined as cash and cash equivalents.

See accompanying notes to the consolidated financial statements.


Notes to the Consolidated Financial Statements

For the three months ended March 31, 2009 and 2008

(Tabular amounts are stated in thousands of dollars except unit, share, and per unit amounts) (unaudited)

Daylight Resources Trust ("Daylight" or the "Trust") is an open-ended, unincorporated investment trust governed by the laws of the Province of Alberta pursuant to a Trust Indenture. Valiant Trust Company has been appointed trustee under the Trust Indenture. The beneficiaries of the Trust are the holders of the trust units ("unitholders").

The purpose of the Trust is to explore for, develop and hold interests in petroleum and natural gas properties through investments in securities of subsidiaries and royalty interests in oil and natural gas properties. The business of the Trust is carried on by Daylight Energy Ltd. ("Daylight Energy") and its subsidiaries. The Trust owns 100% of the common shares of Daylight Energy. The activities of Daylight Energy are financed through internally generated funds from operations and third party debt as described in note 4.

Pursuant to the terms of an agreement (the "NPI Agreement"), the Trust is entitled to a payment from Daylight Energy each month equal to the amount by which 99% of the gross proceeds from the sale of production exceeds 99% of certain deductible expenditures as defined under the terms of the NPI Agreement. Deductible expenditures may include amounts, determined on a discretionary basis, to fund capital expenditures, to repay debt and to provide for working capital required to carry out the operations of Daylight Energy.

The Trust may declare payable to the unitholders all or any part of the net income of the Trust earned from the income generated under the NPI Agreement, and from any dividends paid on the common shares of Daylight Energy, less any expenses of the Trust, including interest on convertible debentures. The Trust intends to continue to make cash distributions; however, these distributions cannot be guaranteed.

Daylight is involved in the exploitation, development and production of petroleum and natural gas in Alberta, British Columbia and Saskatchewan.

1. Significant Accounting Policies

The interim consolidated financial statements are stated in Canadian dollars, have been prepared by management in accordance with Canadian generally accepted accounting principles ("GAAP") following the same accounting policies and methods of computation as the audited consolidated financial statements for the year ended December 31, 2008, and include the accounts of the Trust and its wholly owned subsidiaries. Preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the period. Actual results may differ materially from those estimates.

Specifically, the amounts recorded for the depletion and depreciation of petroleum and natural gas assets and for the accretion of asset retirement obligations are based on estimates. The ceiling test is based on estimates of reserves, production rates, oil and gas prices, future costs and other relevant assumptions. The amounts for unit-based compensation are based on estimates of unit price and performance factors, while the fair value estimates for derivative contracts are based on expected future oil and gas prices. Future income taxes are based on estimates as to the timing of the reversal of temporary differences, and tax rates currently substantively enacted. By their nature, these estimates are subject to measurement uncertainty and the effect on the financial statements of changes in such estimates in future periods could be material.



2. Investments

----------------------------------------------------------------------------
----------------------------------------------------------------------------
March 31, 2009 December 31, 2008
----------------------------------------------------------------------------
Number of Equity or Fair Equity or Fair
Entity Symbol Shares Value Value
----------------------------------------------------------------------------
Bengal Energy Ltd. BNG 4,260,000 $ 1,363 $ 1,363
Trafalgar Energy Ltd. TFL 740,240 429 385
Pegasus Oil & Gas Inc. POG.A 2,440,000 390 537
----------------------------------------------------------------------------
Total $ 2,182 $ 2,285
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Daylight owns 4,260,000 common shares of Bengal Energy Ltd. ("Bengal"), representing a 23% interest, and accounts for the investment using the equity method. For the three months ended March 31, 2009, the equity loss on the investment in Bengal was $nil (2008 - $0.4 million). As at March 31, 2009, the market value of the investment in Bengal was $1.2 million (December 31, 2008 - $1.4 million).

Daylight owns 740,240 common shares of Trafalgar Energy Ltd. ("Trafalgar") with a value of $0.4 million at March 31, 2009. Daylight accounts for this investment at fair value based on the quoted market price.

Daylight owns 2,440,000 Class A common shares of Pegasus Oil & Gas Inc. ("Pegasus") with a value of $0.4 million at March 31, 2009. Daylight accounts for this investment at fair value based on the quoted market price.

Daylight continues to consider its investments in Bengal, Trafalgar and Pegasus as available for disposition.



3. Property, Plant and Equipment

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumulated
depletion and Net book
Cost depreciation value
----------------------------------------------------------------------------
Property, plant and equipment $ 1,461,017 $ 522,443 $ 938,574
Other assets 6,409 3,561 2,848
----------------------------------------------------------------------------
Balance, March 31, 2009 $ 1,467,426 $ 526,004 $ 941,422
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumulated
depletion and Net book
Cost depreciation value
----------------------------------------------------------------------------
Property, plant and equipment $ 1,401,340 $ 480,681 $ 920,659
Other assets 6,173 3,367 2,806
----------------------------------------------------------------------------
Balance, December 31, 2008 $ 1,407,513 $ 484,048 $ 923,465
----------------------------------------------------------------------------
----------------------------------------------------------------------------


During the three months ended March 31, 2009, Daylight capitalized $3.3 million (2008 - $2.1 million) of general and administrative expenses related to exploration and development activities. Included in this amount is $0.3 million (2008 - $0.4 million) of non-cash unit-based compensation and the related tax effect of $0.1 million (2008 - $0.1 million). Future development costs of $120.0 million (2008 - $80.5 million) associated with proved reserves were included in the depletion and depreciation calculation. Future salvage value of production equipment and facilities of $34.4 million (2008 - $33.3 million) and a cost of $36.8 million (2008 - $33.0 million) for unproved properties have been excluded from the depletion and depreciation calculation.

4. Bank Debt

Daylight has a total of $350 million (2008 - $350 million) available under a revolving term credit facility with a syndicate of banks of which $238 million (December 31, 2008 - $220 million) was drawn at March 31, 2009. The effective interest rate for the bank debt was 2.2% for the three months ended March 31, 2009 (2008 - 5.2%). The credit facility bears interest based on the lenders' prime rate and/or at money market rates plus a stamping fee. The facility is secured with a demand debenture of $500 million over the petroleum and natural gas assets and is subject to semi-annual review where the lenders may re-determine the borrowing base.

Pursuant to the terms of the revolving credit facility dated May 7, 2008, Daylight may, with the bank's approval, extend the revolving period for a further 364 day period. If not extended, the revolving facility will automatically convert to a one year and one day non-revolving term facility with the entire payment due on the 366th day after commencement of the term period. The $350 million revolving term credit facility was reviewed and confirmed on April 6, 2009. The available lending limits of the facility are based on the syndicate's interpretation of the Trust's reserves and future commodity prices. There can be no assurance that the amount available under the credit facility will not decrease at the next scheduled review on or before October 31, 2009.

5. Convertible Debentures

On December 19, 2008, Daylight issued $75 million principal amount of 10% Convertible Unsecured Subordinated Debentures, Series C ("Series C Debentures") for net proceeds of $71.7 million. The Series C Debentures pay interest semi-annually on December 31 and June 30, commencing with the initial interest payment on June 30, 2009 and have a maturity date of December 31, 2013. The Series C Debentures are convertible at the option of the holder to trust units at a conversion price of $9.60 per trust unit. The Trust has the option to redeem the Series C Debentures at a price of $1,050 per Series C Debenture after December 31, 2011 and on or before December 31, 2012 and at a price of $1,025 per Series C Debenture after December 31, 2012 and before the maturity date of December 31, 2013. On redemption or maturity the Trust may elect to repay the principal and satisfy its interest obligations by issuing Daylight trust units.

The Series C Debentures were initially recorded at $67.6 million representing the fair value of the obligation net of the fair value of the conversion feature of $7.4 million. The fair value of the conversion feature of $7.4 million has been recorded in unitholders' equity. The Series C Debenture liability has been further reduced by $3.3 million for associated transaction costs.

On October 3, 2007, Daylight issued $125 million principal amount of 8.5% Convertible Unsecured Subordinated Debentures, Series B ("Series B Debentures") for net proceeds of $119.6 million. The Series B Debentures pay interest semi-annually on October 31 and April 30, commencing with the initial interest payment on April 30, 2008 and have a maturity date of October 31, 2012. The Series B Debentures are convertible at the option of the holder to trust units at a conversion price of $8.60 per trust unit. The Trust has the option to redeem the Series B Debentures at a price of $1,050 per Series B Debenture after October 31, 2010 and on or before October 31, 2011 and at a price of $1,025 per Series B Debenture after October 31, 2011 and before the maturity date of October 31, 2012. On redemption or maturity the Trust may elect to repay the principal and satisfy its interest obligations by issuing Daylight trust units.

The Series B Debentures were initially recorded at $121.4 million representing the fair value of the obligation net of the conversion feature of $3.6 million. The fair value of the conversion feature of $3.6 million has been recorded in unitholders' equity. The Series B Debenture liability has been further reduced by $5.4 million for associated transaction costs.

On October 21, 2004, Daylight issued $80 million principal amount of 8.5% Convertible Unsecured Subordinated Debentures, Series A ("Series A Debentures") for net proceeds of $76.8 million. Issue costs of $3.2 million were initially classified as deferred financing charges. Due to the change in accounting policy adopted in 2007, the balance of the unamortized costs of $0.1 million was recorded against the convertible debenture liability. The Series A Debentures pay interest semi-annually on June 1 and December 1 and have a maturity date of December 1, 2009. Series A Debentures are convertible at the option of the holder to trust units at a conversion price of $14.07888 per trust unit. Daylight has the option to redeem the Series A Debentures at a price of $1,050 per Series A Debenture after December 1, 2007 and on or before December 1, 2008, at a price of $1,025 per Series A Debenture after December 1, 2008 and on or before December 1, 2009 and on maturity at $1,000 per Series A Debenture. On redemption or maturity the Trust may elect to repay the principal and satisfy its interest obligations by issuing Daylight trust units.

The Series A Debentures were initially recorded at $77.7 million representing the fair value of the obligation net of the conversion feature of $2.3 million. The fair value of the conversion feature of $2.3 million has been recorded in unitholders' equity.

The following table indicates the Convertible Debenture activities, which include the Series A Debentures, the Series B Debentures, and the Series C Debentures, for the three months ended March 31, 2009 and the year ended December 31, 2008:



----------------------------------------------------------------------------
----------------------------------------------------------------------------
Face Debt Equity
Value Component Component
----------------------------------------------------------------------------
Balance, December 31, 2007 $ 128,576 $ 119,792 $ 3,724
Issued December 19, 2008 75,000 67,580 7,420
Transaction costs on December 19, 2008
issuance - (3,300) -
Transaction costs on October 3, 2007
issuance - 73 -
Converted to trust units (71,263) (66,742) (2,064)
Accretion and amortization - 1,331 -
----------------------------------------------------------------------------
Balance, December 31, 2008 $ 132,313 $ 118,734 $ 9,080
Transaction costs on December 19, 2008
issuance - (15) -
Accretion and amortization - 661 -
----------------------------------------------------------------------------
Balance, March 31, 2009 $ 132,313 $ 119,380 $ 9,080
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The following table indicates the Series A Debentures, Series B Debentures,
and Series C Debentures outstanding as at March 31, 2009:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Face Debt Equity
Value Component Component
----------------------------------------------------------------------------
Series A Debentures $ 3,576 $ 3,544 $ 104
Series B Debentures 53,737 51,009 1,556
Series C Debentures 75,000 64,827 7,420
----------------------------------------------------------------------------
Balance, March 31, 2009 $ 132,313 $ 119,380 $ 9,080
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The Series A Debentures mature on December 1, 2009. As a result, the debt component of $3.5 million has been shown as a current liability.

6. Financial Charges

During the three months ended March 31, 2009 and 2008, Daylight incurred interest charges on bank debt and convertible debentures as well as the amortization of financial charges and accretion of the convertible debenture liability as follows:



----------------------------------------------------------------------------
----------------------------------------------------------------------------
2009 2008
----------------------------------------------------------------------------
Bank debt interest $ 1,485 $ 3,700
Convertible debenture interest 3,051 2,717
Amortization of financial charges 27 27
Accretion of convertible debenture liability 661 454
----------------------------------------------------------------------------
Total $ 5,224 $ 6,898
----------------------------------------------------------------------------
----------------------------------------------------------------------------

A reconciliation of the deferred financing charges is provided as follows:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
March 31, December 31,
2009 2008
----------------------------------------------------------------------------
Balance, beginning of period $ 100 $ 208
Amortization (27) (108)
----------------------------------------------------------------------------
Balance, end of period $ 73 $ 100
----------------------------------------------------------------------------
----------------------------------------------------------------------------


7. Asset Retirement Obligations

Daylight's asset retirement obligations result from net ownership interests in petroleum and natural gas assets including well sites, gathering systems and processing facilities. Daylight estimates the total undiscounted cash flow required to settle its asset retirement obligations is approximately $118.8 million (December 31, 2008 - $118.4 million) which will be incurred between 2009 and 2056. The majority of the costs will be incurred between 2009 and 2031. An inflation factor of 2% has been applied to the estimated asset retirement cost at March 31, 2009 and December 31, 2008. A credit-adjusted risk-free rate of 10% was used to calculate the fair value of the asset retirement obligations for the fourth quarter of 2008 and first quarter of 2009. All prior asset retirement obligations have been recorded using a credit adjusted risk-free rate of 8%.



A reconciliation of the asset retirement obligations is provided as follows:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
March 31, December 31,
2009 2008
----------------------------------------------------------------------------
Balance, beginning of period $ 22,110 $ 22,458
Liabilities incurred on corporate acquisition - 797
Liabilities incurred on property acquisitions - 1,041
Liabilities transferred on disposal - (3,311)
Liabilities incurred 78 2,302
Liabilities settled (1,011) (3,800)
Accretion expense 745 2,623
----------------------------------------------------------------------------
Balance, end of period $ 21,922 $ 22,110
----------------------------------------------------------------------------
----------------------------------------------------------------------------


8. Unitholders' Equity

The Trust Indenture provides that an unlimited number of trust units may be authorized and issued. Each trust unit is transferable, carries the right to one vote and represents an equal undivided beneficial interest in any distributions from the Trust and in the assets of the Trust in the event of termination or winding-up of the Trust. All trust units are of the same class with equal rights and privileges.



a) Trust Units

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Number of
Units Amount
----------------------------------------------------------------------------
Balance, December 31, 2007 77,657,133 $ 1,083,664
Issued on vesting of Unit Awards 562,729 4,221
Issued on conversion of debentures 8,286,372 68,806
Issued through Employee Unit Ownership Plan 126,742 1,044
Issued through Employee Bonus Plan 242,467 2,410
Issued on acquisition of property 3,750,000 26,887
Cancelled under normal course issuer bid (386,200) (5,164)
----------------------------------------------------------------------------
Balance, December 31, 2008 and March 31, 2009 90,239,243 $ 1,181,868
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Normal Course Issuer Bid

On July 28, 2008 Daylight filed notice with the Toronto Stock Exchange (the "TSX") to make a normal course issuer bid (the "Bid") to purchase outstanding trust units on the open market through the facilities of the TSX. The TSX has authorized Daylight to purchase up to 8,206,753 trust units, being 10% of the public float, from July 30, 2008 through July 29, 2009 or such earlier time as the Bid is completed or terminated at the option of the Trust. The Trust will pay for any trust units acquired under the Bid at the prevailing market price on the TSX at the time of the purchase. The trust units acquired under the Bid will be cancelled. For the three months ended March 31, 2009, no trust units were purchased and cancelled. For the year ended December 31, 2008, Daylight purchased and cancelled 386,200 trust units at a cost of $3.9 million. The average carrying value of the units repurchased of $5.2 million was charged to unitholders' capital with the excess of $1.3 million charged to contributed surplus.

Premium Distribution Reinvestment and Optional Trust Unit Purchase Plan ("Premium DRIP™")

Daylight has a Premium Distribution Reinvestment and Optional Trust Unit Purchase Plan ("Premium DRIP™") for eligible unitholders of the Trust. On distribution payment dates eligible Premium DRIP™ unitholders may receive in lieu of the cash distribution that unitholders are otherwise entitled to receive in respect of their units, a cash payment equal to 102% of such amount. Unitholders may also reinvest their cash distributions in additional trust units at a price that is 95% of the average market price for the Pricing Period. The Pricing Period refers to the period beginning on the later of the 21st business day preceding the distribution payment date and the second business day following the record date applicable to that distribution payment date, and ending on the second business day preceding the distribution payment date. Eligible Premium DRIP™ unitholders may also make optional cash payments on this date to purchase additional trust units at a price that is equal to the average market price for the Pricing Period. Daylight can prorate or suspend requests for the receipt of amounts under the Premium DRIP™.

Daylight has not issued any trust units under the Premium DRIP™ program since August 2007 when Daylight suspended this program.

Employee Unit Ownership Plan ("EUOP")

Daylight has an Employee Unit Ownership Plan ("EUOP") whereby the Trust matches every dollar contributed by each employee, to a maximum of 11% of the employee's salary. Under the terms of the EUOP, the Trust has the option to acquire trust units on behalf of employees through open market purchases or to issue new trust units from treasury. During the three months ended March 31, 2009, the Trust elected to issue no trust units from treasury in settlement of EUOP obligations representing the employee contributions and the Trust's matching contributions. During the year ended December 31, 2008, the Trust elected to issue 126,742 trust units ($1.0 million) from treasury in settlement of EUOP obligations representing the employee contributions and the Trust's matching contributions. The price used to determine the number of trust units issued from treasury on a monthly basis is the average market price for the period beginning on the second business day of the month and ending on the second business day preceding the monthly distribution payment date.

Redemption Right

Unitholders may redeem their trust units for cash at any time, up to a maximum of $250,000 in any calendar month, by delivering their unit certificates to the Trustee, together with a properly completed notice of redemption. The redemption amount per trust unit will be the lesser of 90 percent of the market price of the trust units on the principal market on which they are traded during the 10 day trading period after the trust units have been validly tendered for redemption and the closing market price of the trust units on the principal market on which they are traded on the date on which they were validly tendered for redemption, or if there was no trade of the trust units on that date, the average of the last bid and ask prices of the trust units on that date.

b) Net Income Per Unit

The following table summarizes the weighted average trust units, convertible debentures, and Restricted and Performance Unit Awards used in calculating the net income per trust unit:



----------------------------------------------------------------------------
----------------------------------------------------------------------------
2009 2008
----------------------------------------------------------------------------
Basic 90,239,243 77,727,376
Restricted and Performance Unit Awards 1,253,923 464,288
----------------------------------------------------------------------------
Diluted 91,493,166 78,191,664
----------------------------------------------------------------------------
----------------------------------------------------------------------------


A total of 14,314,985 (2008 - 14,785,469) trust units attributable to convertible debentures were excluded from the calculation for the three months ended March 31, 2009 as they were anti-dilutive.

c) Unit Award Incentive Plan

Daylight has a Unit Award Incentive Plan which allows the Board of Directors to grant up to 5% of the trust units outstanding as Restricted and/or Performance Unit Awards to directors, officers, employees and service providers of Daylight and its affiliates. The Restricted Unit Awards and Performance Unit Awards vest over a three-year period. The number of units issued under the Performance Unit Awards granted is also subject to a performance multiplier and is dependent on the performance of the Trust relative to a peer comparison group of oil and gas producers. A holder of a Restricted or Performance Unit Award may elect, subject to the consent of Daylight, to receive cash upon vesting in lieu of the number of units held. The plan provides for adjustments to the number of units issued based on the cumulative distributions of the Trust during the period that the Restricted or Performance Unit Award is outstanding.



The following tables reconcile the number of Restricted and Performance Unit
Awards outstanding:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Restricted Unit Awards Number
----------------------------------------------------------------------------
Balance, December 31, 2007 1,037,420
Issued 488,430
Vested and converted to trust units (324,715)
Forfeited (134,606)
----------------------------------------------------------------------------
Balance, December 31, 2008 1,066,529
Issued 46,000
Forfeited (53,165)
----------------------------------------------------------------------------
Balance, March 31, 2009 1,059,364
Weighted average adjustment factor 1.26460
----------------------------------------------------------------------------
Trust unit equivalent 1,339,675
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Performance Total
Performance Unit Awards Number Multiplier Number
----------------------------------------------------------------------------
Balance, December 31, 2007 170,000 1 170,000
Issued 26,250 - 26,250
Vested and converted to trust units (55,833) - (55,833)
----------------------------------------------------------------------------
Balance, December 31, 2008 140,417 1 140,417
Issued 452,000 - 452,000
Forfeited (23,333) - (23,333)
----------------------------------------------------------------------------
Balance, March 31, 2009 569,084 1 569,084
Weighted average adjustment factor 1.09417
Trust unit equivalent 622,674
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The performance multiplier is calculated on an annual basis for one third of the Performance Unit Awards originally granted. The performance multiplier may range from 0 to 2 in any given year as determined by the Board of Directors. For the period ended October 9, 2007, a performance multiplier of 0 was granted on the units. For the periods ended April 9, 2008, October 9, 2008, and February 23, 2009 a performance multiplier of 2 was granted on the units. Daylight has assumed a multiplier of 1 on the performance units for the three months ended March 31, 2009, although the final multiplier may range anywhere from 0 to 2.

The fair value of the Unit Awards is determined at the date of grant and amortized through general and administrative expense over the vesting period as unit-based compensation with a corresponding increase to contributed surplus. The weighted average fair value at the date of grant for the Unit Awards granted during the three months ended March 31, 2009 was $6.74 per Unit Award. There were no awards granted during the three months ended March 31, 2008. During the three months ended March 31, 2009, $1.3 million (2008 - $1.0 million) was charged to general and administrative expense.



d) Contributed Surplus

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Amount
----------------------------------------------------------------------------
Balance, December 31, 2007 $ 2,437
Unit-based compensation 4,610
Vested Unit Awards (4,221)
Excess of trust unit redemption amount over trust unit stated
amount 1,329
----------------------------------------------------------------------------
Balance, December 31, 2008 $ 4,155
----------------------------------------------------------------------------
Unit-based compensation 1,275
----------------------------------------------------------------------------
Balance, March 31, 2009 $ 5,430
----------------------------------------------------------------------------
----------------------------------------------------------------------------

e) Accumulated Distributions

The table below shows the cumulative distributions of Daylight Energy Trust
("DET") in total and per unit as well as per Daylight Resources Trust unit
equivalent:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
per Daylight per DET
Record Date Unit equivalent(1) Unit Amount
----------------------------------------------------------------------------
Total 2004 cash distributions $ 0.36 $ 0.24 $ 9,777
----------------------------------------------------------------------------
Total 2005 cash distributions $ 2.26 $ 1.50 $ 72,585
Open Range distribution (cost
base) 0.47 0.31 15,235
----------------------------------------------------------------------------
Total 2005 distributions $ 2.73 $ 1.81 $ 87,820
----------------------------------------------------------------------------
Total 2006 cash distributions $ 1.68 $ 1.12 $ 70,901
Trafalgar distribution (cost base) 0.26 0.17 11,202
----------------------------------------------------------------------------
Total 2006 distributions $ 1.94 $ 1.29 $ 82,103
----------------------------------------------------------------------------
Total distributions since
inception $ 5.03 $ 3.34 $ 179,700
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) may not add exactly due to rounding

The table below shows the cumulative distributions and per unit equivalent
for Daylight Resources Trust:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Record Date Per Unit Amount
----------------------------------------------------------------------------
Total 2006 cash distributions $ 0.78 $ 57,021
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total 2007 cash distributions $ 1.55 $ 118,891
----------------------------------------------------------------------------

January 31, 2008 0.10 7,769
February 29, 2008 0.10 7,773
March 31, 2008 0.10 7,791
April 30, 2008 0.10 7,868
May 30, 2008 0.10 8,391
June 30, 2008 0.10 8,548
July 31, 2008 0.13 11,216
August 29, 2008 0.13 11,249
September 30, 2008 0.13 11,219
October 31, 2008 0.13 11,731
November 28, 2008 0.13 11,731
December 31, 2008 0.13 11,731
----------------------------------------------------------------------------
Total 2008 cash distributions $ 1.38 $ 117,017
----------------------------------------------------------------------------

January 30, 2009 0.08 7,219
February 27, 2009 0.08 7,219
March 31, 2009 0.08 7,219
----------------------------------------------------------------------------
Total 2009 cash distributions $ 0.24 $ 21,657
----------------------------------------------------------------------------

Total distributions since inception $ 3.95 $ 314,586
----------------------------------------------------------------------------
----------------------------------------------------------------------------

9. Supplemental Cash Flow Information

----------------------------------------------------------------------------
----------------------------------------------------------------------------
2009 2008
----------------------------------------------------------------------------
Changes in non-cash working capital:
Accounts receivable $ 5,328 $ (11,785)
Prepaid expenses and deposits (919) 31
Accounts payable and accrued liabilities 18,798 9,650
----------------------------------------------------------------------------
Change in non-cash working capital $ 23,207 $ (2,104)
----------------------------------------------------------------------------
Relating to:
Operating activities $ 3,545 $ (14,088)
Financing activities 3,051 2,717
Investing activities 16,611 9,267
----------------------------------------------------------------------------
Change in non-cash working capital $ 23,207 $ (2,104)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
----------------------------------------------------------------------------
2009 2008
----------------------------------------------------------------------------
Interest and taxes paid:
Interest $ 1,239 $ 3,464
Taxes $ 34 $ 152
----------------------------------------------------------------------------
----------------------------------------------------------------------------


10. Financial Risk Management

Overview

The Trust has exposure to the following risks from its use of financial instruments:

- Credit risk

- Liquidity risk

- Market risk

This note presents information about the Trust's exposure to each of the above risks, the Trust's objectives, policies and processes for measuring and managing risk, and the Trust's management of capital. Further quantitative disclosures are included throughout these financial statements.

The Board of Directors has overall responsibility for the establishment and oversight of the Trust's risk management framework. Daylight's management has implemented and continues to maintain and monitor risk management procedures for the benefit of the organization.

The Trust's risk management policies are established to: (i) Identify and analyze the risks faced by the Trust; (ii) Set appropriate risk limits and controls; and (iii) Monitor risks and consider the implications of market conditions in relation to the Trust's activities.

Due to the global economic downturn, capital markets remain uncertain and as a result, access to capital in the oil and gas sector is limited and the cost of capital has increased. Although the business and assets of the Trust have not changed, financial institutions and investors have increased their risk premiums and their overall lending capacity and equity investment has diminished. On April 15, 2009, Daylight announced a "bought-deal" financing of 24,630,000 trust units at a price of $7.00 per trust unit for gross proceeds of $172 million. Net proceeds of the issue will be used by the Trust to reduce outstanding borrowings on the credit facilities, to fund future growth initiatives and for general corporate purposes (see note 13). The Trust's banking syndicate completed its semi-annual borrowing base review on April 6, 2009, and the bank credit facility remains at $350 million. The next review will take place on or before October 31, 2009. On December 19, 2008, Daylight issued $75 million principal amount of 10% Convertible Unsecured Subordinated Debentures, Series C for net proceeds of $71.7 million. Proceeds of the convertible debenture issuance were used to repay bank debt. The Trust continually monitors its financing alternatives, and makes adjustments as circumstances and opportunities vary.

Credit Risk

Credit risk is the risk of financial loss to the Trust if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from Daylight's receivables from joint venture partners and petroleum and natural gas marketers. As at March 31, 2009, Daylight's receivables consisted of $8.8 million (December 31, 2008 - $7.5 million) from joint venture partners, $29.8 million (December 31, 2008 - $33.9 million) of receivables from petroleum and natural gas marketers and $1.6 million (December 31, 2008 - $4.1 million) of other trade receivables.

Receivables from petroleum and natural gas marketers are normally collected on or about the 25th day of the month following production. Daylight's policy to mitigate credit risk associated with these balances is to maintain marketing relationships with large, established and reputable purchasers that are considered to be creditworthy. Historically, Daylight has not experienced any collection issues related to its petroleum and natural gas marketers with the recent exception of an issue with SemGroup L.P. ("SemCanada") which is described in further detail within this note. Joint venture receivables are typically collected within one to three months of the joint venture bill being issued to the partner. Daylight attempts to mitigate the risk from joint venture receivables by obtaining partner approval of significant capital expenditures prior to expenditure and in certain circumstances may require cash deposits in advance of incurring financial obligations on behalf of joint venture partners. However, the receivables are from participants in the petroleum and natural gas sector and collection of the outstanding balances is dependent on industry factors such as changes in commodity prices, escalating costs and the risk of unsuccessful drilling. In addition, further risk exists with joint venture partners as disagreements occasionally arise that increase the potential for non-collection. The Trust does not typically obtain collateral from petroleum and natural gas marketers or joint venture partners; however, Daylight does have the ability to withhold production from joint venture partners in the event of non-payment or may be able to register security on the assets of joint venture partners.

On July 22, 2008, one of Daylight's minor oil marketing and natural gas processing counterparties, SemCanada entered creditor protection. As of that date, Daylight had a receivable from certain subsidiaries of SemCanada of approximately $1.8 million. As of December 31, 2008, Daylight considered collection of this receivable at risk and as such, provided an allowance for doubtful accounts of $1.8 million. Although an allowance has been provided, Daylight will continue to pursue collection of this receivable. The allowance may be adjusted if circumstances or events change. Daylight's management has concluded that its existing credit risk program remains appropriate and has concluded that these events could not have been foreseen by a standard credit risk program. Daylight continues its regular review of purchasers against its credit risk program to ensure credit worthiness given current market conditions.

The derivative contracts asset consists of commodity contracts used to manage the Trust's exposure to fluctuations in commodity prices. The Trust manages the credit risk exposure related to derivative assets by selecting counterparties based on credit ratings and financial stability and by not entering into commodity contracts for trading or speculative purposes. Daylight's policy to mitigate credit risk associated with derivatives is to only enter into derivative contracts with large, established and reputable counterparties that are considered to be creditworthy. Daylight has International Swaps and Derivatives Association ("ISDA") agreements or long form confirmations in place with all of its derivative contract counterparties. These agreements and confirmations provide some credit protection in that they generally allow parties to aggregate amounts owing to each other under all outstanding transactions and settle with a single net amount in the case of a credit event. Daylight's derivative counterparties include the members of its banking syndicate that provide access to bank debt under the revolving term credit facility described in note 4. At March 31, 2009, 84% of Daylight's $73.4 million unrealized gain on derivative contracts was with members of Daylight's banking syndicate. The remaining 16% of Daylight's unrealized gain on derivative contracts is with a major American financial institution.

The carrying amount of accounts receivable and derivative contracts represents the maximum credit exposure. Daylight has provided an allowance for doubtful accounts as at March 31, 2009 of $1.8 million (December 31, 2008 - $1.8 million).

As at March 31, 2009 and December 31, 2008, Daylight considers its receivables to be fully collectible with receivable aging as follows:



----------------------------------------------------------------------------
----------------------------------------------------------------------------
March 31, 2009 December 31, 2008
----------------------------------------------------------------------------
Current (90 days or less) $ 35,602 $ 38,820
Past due (more than 90 days) 4,572 6,682
----------------------------------------------------------------------------
Total $ 40,174 $ 45,502
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Liquidity Risk

Liquidity risk is the risk that the Trust will not be able to meet its financial obligations as they are due. Daylight's approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions without incurring unacceptable losses or risking harm to Daylight's reputation.

Daylight prepares annual capital expenditure budgets, which are regularly monitored and updated as considered necessary. Further, Daylight utilizes authorizations for expenditures on both operated and non operated projects to further manage capital expenditures. To facilitate timing and liquidity requirements as well as a desirable low cost of capital, Daylight has a revolving reserve-based credit facility, as outlined in note 4, that is reviewed at least annually by the lender. On April 15, 2009, Daylight announced a "bought-deal" financing of 24,630,000 trust units at a price of $7.00 per trust unit for gross proceeds of $172 million. Net proceeds of the issue will be used by the Trust to reduce outstanding borrowings on the credit facilities, to fund future growth initiatives and for general corporate purposes (see note 13). On December 19, 2008, Daylight issued $75 million principal amount of 10% Convertible Unsecured Subordinated Debentures, Series C for net proceeds of $71.7 million. Proceeds of the convertible debenture issuance were used to repay bank debt.



The following are the contractual maturities of financial liabilities as at
March 31, 2009:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
less than 1
Year 1 - 2 Years 2 - 5 Years
----------------------------------------------------------------------------
Accounts payable and accrued liabilities $ 94,888 $ - $ -
Distributions payable 7,219 - -
Bank debt - principal - - 238,359
Convertible debentures - principal 3,576 - 128,737
----------------------------------------------------------------------------
$105,683 $ - $ 367,096
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Market Risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, commodity prices, and interest rates will affect the Trust's operations, net earnings or the value of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable limits, while maximizing long term returns.

The Trust utilizes both financial derivative contracts and physical delivery sales contracts to manage market risks. All such transactions are conducted in accordance with the Trust's established risk management procedures.

Interest Rate Risk:

Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Trust is exposed to interest rate risk to the extent that changes in market interest rates will impact the Trust's bank debt which is subject to a floating interest rate. For the three months ended March 31, 2009, Daylight's effective interest rate was 2.2% (2008 - 5.2%). If this rate had been 1.2% for the three months ended March 31, 2009 (2008 - 4.2%), with all other variables held constant, net income for the period would have been $0.4 million (2008 - $0.5 million) higher due to lower interest expense for the period of $0.6 million (2008 - $0.7 million). An equal and opposite impact would have occurred to net income and interest expense had interest rates increased for the three months ended March 31, 2009 to 3.2% (2008 - 6.2%). The sensitivity to interest rate changes is lower in 2009 as compared to 2008 because of a reduction in outstanding bank debt which averaged $235 million in the first three months of 2009 compared to $273 million for the same period in 2008.

The Trust had no interest rate swap or financial contracts in place as at or during the period ended March 31, 2009.

Foreign Currency Exchange Rate Risk:

Foreign currency exchange rate risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in foreign exchange rates. While substantially all of the Trust's petroleum and natural gas sales are denominated in Canadian dollars, the underlying market prices in Canada for petroleum and natural gas are impacted by changes in the exchange rate between the Canadian and United States dollar.

Daylight had no forward exchange rate contracts in place as at or during the period ended March 31, 2009.

Commodity Price Risk:

Commodity price risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in commodity prices. Commodity prices for petroleum and natural gas are impacted by not only the relationship between the Canadian and United States dollar, as outlined above, but also world economic events that dictate the levels of supply and demand. The Trust has attempted to mitigate commodity price risk through the use of various financial derivative and physical delivery sales contracts.

The Trust's current policies permit hedging of up to 50% of its petroleum and natural gas production for up to 12 months in the future and up to 25% of petroleum and natural gas production for the period commencing 12 months in the future and ending 24 months in to the future. These hedging limits can be changed upon approval by the Board of Directors.



As at March 31, 2009, the following derivative contracts were outstanding:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Hedged
Type of Contract Commodity Volume(3) Hedge Price Hedge Period
----------------------------------------------------------------------------
Financial (Swap)(1) Natural gas 35,000 GJ/d Cdn$7.58/GJ Apr 1/09 to
Oct 31/09
Financial (Swap)(1) Natural gas 10,000 GJ/d Cdn$7.59/GJ Apr 1/09 to
Oct 31/09
Financial (Swap)(1) Natural gas 5,000 GJ/d Cdn$7.63/GJ Apr 1/09 to
Oct 31/09
Financial (Collar)(2) Crude oil 1,000 bbl/d Cdn$110.00 - Apr 1/09 to
$206.00/bbl Dec 31/09
Financial (Collar)(2) Crude oil 1,000 bbl/d Cdn$110.00 - Apr 1/09 to
$205.55/bbl Dec 31/09
Financial (Collar)(2) Crude oil 1,000 bbl/d Cdn$110.00 - Apr 1/09 to
$205.00/bbl Dec 31/09
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(1) Swap indicates fixed price.

(2) Collar price indicates floor (minimum) and ceiling (maximum).

(3) A GJ converts to a mcf at the rate of 1.055056 GJs per mcf.

The following table provides a summary of the gain (loss) on financial
instruments for the three months ended March 31, 2009 and 2008:

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2009 2008
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Realized gain on derivative contracts $ 25,285 $ -
Unrealized gain (loss) on derivative contracts 1,837 (22,270)
Unrealized loss on investments held for trading (note 2) (103) (133)
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Total $ 27,019 $(22,403)
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The unrealized gain from derivative contracts has been included on the balance sheet with changes in the fair value included in gain (loss) on financial instruments on the statement of income. As at March 31, 2009, if the future strip prices for natural gas were $0.10 per GJ lower and $1.00 per barrel lower for crude oil, with all other variables held constant, net income for the period would have been $1.3 million (2008 - $0.8 million) higher due to the increase in the fair value of the derivative contracts asset of $1.9 million (2008 - $1.1 million). An equal and opposite impact would have occurred to net income and the fair value of the derivative contracts asset had natural gas prices been $0.10 per GJ higher and crude oil prices been $1.00 per barrel higher.

Fair Value of Financial Instruments

Financial instruments include accounts receivable, investments, accounts payable and accrued liabilities, derivative contracts, cash distributions payable, bank debt, and convertible debentures. Unless otherwise noted, carrying values reflect the current fair value of the Trust's financial instruments due to the short term to maturity. The Trust's investments held for trading have a fair value based on a quoted market value of $0.8 million that also represents their carrying value. The equity investment has a fair value based on a quoted market value of $1.2 million that is less than its carrying value of $1.4 million. The fair value of derivative contracts as presented on the balance sheet is determined by discounting the difference between the contracted price and published forward price curves (ranging from $60.60 per barrel to $72.17 per barrel for oil and $3.57 per GJ to $4.27 per GJ for natural gas) as at the balance sheet date, using the remaining contracted petroleum and natural gas volumes. The Trust's bank debt bears interest at a floating market rate and accordingly the fair market value approximates the carrying value. The convertible debentures outstanding at March 31, 2009, with a face value of $132.3 million (December 31, 2008 - $132.3 million), had a fair value based on a quoted market value of $126.0 million (December 31, 2008 - $123.2 million).

Capital Management

The Trust targets the maintenance of a strong capital base so as to maintain and potentially increase investor, creditor and market confidence and to sustain the future development of the business. Daylight targets to fully finance its capital expenditures and cash distributions with funds from operations over the longer term but may not fully finance these items within a quarterly or annual period.

Daylight manages its capital structure and makes adjustments to its capital structure in consideration of changes in economic conditions and the risk characteristics of the underlying petroleum and natural gas assets. The Trust considers its capital structure to include unitholders' equity, convertible debentures, bank debt and working capital. In order to maintain or adjust the capital structure, the Trust may from time to time issue units, issue convertible debentures, adjust its capital spending or adjust distributions levels. On April 15, 2009, Daylight announced a "bought-deal" financing of 24,630,000 trust units at a price of $7.00 per trust unit for gross proceeds of $172 million. Net proceeds of the issue will be used by the Trust to reduce outstanding borrowings on the credit facilities, to fund future growth initiatives and for general corporate purposes (see note 13). On December 19, 2008, Daylight issued $75 million principal amount of 10% Convertible Unsecured Subordinated Debentures, Series C for net proceeds of $71.7 million. Proceeds of the convertible debenture issuance were used to repay bank debt.



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March 31, 2009 December 31, 2008
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Bank debt $ 238,359 $ 219,853
Working capital deficiency(1) 60,981 42,275
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Net debt $ 299,340 $ 262,128
Convertible debentures $ 115,836 $ 115,201
Unitholders' equity $ 574,621 $ 588,932
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(1) Excludes unrealized gain on derivative contracts and future income tax
liability.


The Trust monitors its capital structure with consideration of the ratio of net debt to annualized funds from operations. This ratio is calculated as net debt, defined as outstanding bank debt plus or minus working capital, excluding the unrealized gain on derivative contracts and future income tax liability, divided by funds from operations on an annualized basis, defined as the preceding six month period times 2. Funds from operations is based on cash provided by operating activities before the change in non-cash operating working capital and asset retirement expenditures.

The Trust's strategy is to maintain a ratio that is considered reasonable and prudent in the circumstances. This ratio may increase at certain times. In order to facilitate the management of this ratio, the Trust prepares annual capital expenditure budgets, which are updated as necessary depending on varying factors including current and forecast commodity prices and production levels, the success of the capital expenditure program and general industry conditions. The annual and updated budgets are approved by the Board of Directors. As at March 31, 2009, Daylight's ratio of net debt to annualized funds from operations, utilizing the current and prior quarter funds from operations times 2, was 1.6 to 1 compared to 1.0 to 1 as at December 31, 2008. This increase is a result of the decrease in funds from operations due to lower commodity prices and higher general and administrative costs.



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March 31, 2009 December 31, 2008
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Bank debt $ 238,359 $ 219,853
Working capital deficiency(1) 60,981 42,275
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Net debt $ 299,340 $ 262,128
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Cash provided by operating activities $ 47,429 $ 47,416
Change in non-cash operating working capital (3,545) 1,329
Asset retirement expenditures 1,011 1,330
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Funds from operations - current quarter $ 44,895 $ 50,075
Funds from operations - prior quarter 50,075 78,646
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$ 94,970 $ 128,721
x 2 x 2
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Annualized funds from operations $ 189,940 $ 257,442
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Ratio of net debt to annualized funds from
operations 1.6 1.0
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(1) Excludes unrealized gain on derivative contracts and future income tax
liability.


The Trust also monitors the payout ratio to evaluate financial flexibility and the capacity to fund distributions. Payout ratio is defined on a percentage basis as distributions declared divided by funds from operations. Daylight believes that a payout ratio above 100% is a significant concern as it indicates that no funds from operations are being retained to finance capital expenditures or to repay debt. Daylight believes that a lower payout ratio corresponds to greater financial flexibility since the excess funds from operations can be invested in capital expenditures for the long term benefit of Daylight or be utilized to repay debt and reduce the leverage utilized by Daylight. For the three months ended March 31, 2009, the payout ratio was 48%, compared to 70% for the three months ended December 31, 2008 due to the decrease in distributions declared in 2009.



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March 31, 2009 December 31, 2008
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Distributions declared $ 21,657 $ 35,193

Cash provided by operating activities $ 47,429 $ 47,416
Change in non-cash operating working capital (3,545) 1,329
Asset retirement expenditures 1,011 1,330
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Funds from operations $ 44,895 $ 50,075
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Payout ratio 48% 70%
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The Trust's unit capital is not subject to external restrictions; however, the bank debt facility is based on petroleum and natural gas reserves (see note 4). The Trust's ability to raise new equity will be limited by the Safe Harbour Limit guidelines as announced by the Federal government. There were no changes in the Trust's approach to capital management during the three month period ended March 31, 2009.

11. Related Party Transactions

Daylight and MOX are considered related parties, as Daylight's Chairman is a director and officer of MOX. In addition, Daylight's Chief Executive Officer and director is also a director of MOX and Daylight's Corporate Secretary is also MOX's Corporate Secretary. Daylight and MOX are joint venture partners in certain properties, and as a result, revenues and costs related to these properties are allocated to each partner under standard joint venture billing arrangements. Each partner's costs and revenues are based on the exchange amounts which reflect actual third party costs incurred and revenue received. All transactions are conducted under standard business terms and are considered within the normal course of Daylight's business activities and operations. In addition, certain administrative services which provide reasonable economy and do not involve competitive issues continue to be provided to MOX by Daylight Energy. These administrative services are provided on a fixed fee basis negotiated by the parties, which is considered comparable to the fee an independent third party would charge for the services, and may be cancelled by either party.

For the three months ended March 31, 2009, Daylight charged MOX $0.2 million (2008 - $0.4 million) for administrative services and premises costs with a payable balance, which included joint venture and commodity marketing amounts, of approximately $11.4 million due to MOX as at March 31, 2009 (December 31, 2008 - $2.8 million). At March 31, 2009, MOX held an advance capital deposit of $7.7 million (December 31, 2008 - $3.9 million) in conjunction with normal course oil and gas drilling activities.



12. Commitments

The following is a summary of Daylight's contractual obligations and
commitments as at March 31, 2009:

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2009 2010 2011 2012 2013 Thereafter
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Operating leases $ 5,064 $ 3,685 $ 2,432 $ 1,526 $ 1,525 $ 4,956
Natural gas
transportation 1,785 2,236 1,656 422 - -
Convertible debentures
(face value) 3,576 - - 53,737 75,000 -
Bank debt - - 238,359 - - -
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$10,425 $ 5,921 $ 242,447 $55,685 $76,525 $ 4,956
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Included in operating leases are obligations related to office space, office equipment and a drilling rig contract.

In addition to the above, the Trust has commitments related to its risk management program (see note 10).

13. Subsequent Events

On April 15, 2009 Daylight announced that it had reached an agreement with a syndicate of underwriters (the "Underwriters") pursuant to which the Trust will issue on a "bought-deal" basis, subject to regulatory approval, 21,430,000 trust units at a price of $7.00 per trust unit for gross proceeds of $150,010,000. Under the Offering, the Trust granted the Underwriters an over-allotment option to purchase up to an additional 3,200,000 trust units at the same offering price, exercisable in whole or in part, at any time for a period of up to 30 days following the closing of the Offering, to cover over-allotments which, if exercised in full, would increase the total gross proceeds of the Offering to $172,410,000. The Underwriters have exercised this option in full and as such, Daylight will receive $172,410,000 upon close on May 7, 2009. Net proceeds of the Offering will be used by the Trust to reduce outstanding borrowings under Daylight's credit facilities, fund future growth initiatives and for general corporate purposes. The Offering is subject to normal regulatory approvals, including approval of the TSX.

On April 27, 2009 Daylight announced that it had entered into an agreement (the "Agreement") to acquire a private oil and gas company ("PrivateCo") by way of plan of arrangement. Pursuant to the Agreement, which is subject to stock exchange, court and regulatory approval as well as approval of the shareholders of PrivateCo, Daylight will acquire all of the issued and outstanding shares of PrivateCo by issuing 7.25 million Daylight units and paying $32 million cash. Total consideration for the transaction is approximately $109 million including the assumption of $25 million in net debt. In certain circumstances, a non-completion fee of $4 million may be payable by one party to the other entity.



Abbreviations
/d per day
bbl(s) barrel(s)
mbbls thousand barrels
mmbbls million barrels
mcf thousand cubic feet
mmcf million cubic feet
bcf billion cubic feet
boe barrels of oil equivalent
mmboe million barrels of oil equivalent
mmbtu million British thermal units
mmstb million stock tank barrels of oil
Cdn Canadian
GJ gigajoules
NGLs natural gas liquids
WTI West Texas Intermediate crude oil
US United States


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